GENERM-
LIBRARY
OF THE
UNIVERSITY OF CALIFORNIA.
Accession 9.6..Q..3.2 .... Class
PRINCIPLES AND PRACTICE
OF FINANCE
A PRACTICAL GUIDE FOR BANKERS, MERCHANTS, AND
LAWYERS. TOGETHER WITH A SUMMARY OF THE
NATIONAL AND STATE BANKING LAWS, AND THE
LEGAL RATES OF INTEREST, TABLES OF FOREIGN
COINS, AND A GLOSSARY OF COMMERCIAL AND
FINANCIAL TERMS.
BY
EDWARD CARROLL, JR.
G. P. PUTNAM'S SONS
NEW YORK LONDON
27 WEST TWENTY-THIRD STREET 24 BEDFORD STREET, STRAf
<&t Knickerbocker Press
1897
,1,0
COPYRIGHT, 1895
BY
EDWARD CARROLL, JR.
GENERAL
Ube Iknicfeerbocfcer press, TOe\v IRocbelle, 1R
PREFACE.
WHILE there are many books treating of the principles
of money and some which discuss the operations of
finance, to the writer's knowledge there is no one work
combining both a treatment of principles and a discussion
of practices. This apparent want the writer has sought
to supply in the present work, and he hopes that the
practical information contained herein will be sufficient
reason for its issue. This book is intended to be a prac-
tical one, from which a person can obtain data on the
subjects treated, rather than an exhaustive exposition of
the theory of money. The Principles of Finance are dis-
cussed only to that extent deemed necessary to enable
the reader, uneducated in the principles of money, to
clearly understand the Practice of Finance.
The book is divided into two parts. The first which
deals only with the Principles of Finance, and the second
which is confined to the practical application of those
principles through the machinery of finance and com-
merce.
The principles of finance are discussed in the first two
chapters in as short space as is compatible with a suf-
ficiently comprehensive treatment to make them clear.
The remainder of the book is devoted to the Practice
of Finance, and, while it is necessarily not exhaustive, it
has been sought to discuss those parts of finance, a knowl-
edge of which is most necessary.
96032
IV PREFA CE.
The writer, fully realizing the practical impossibility of
any one individual possessing sufficient information of
the various subjects discussed to treat of them authorita-
tively, has freely availed himself of information obtainable
by him, and desires here to acknowledge his indebted-
ness to many bankers and business men for their kind
interest in his work and the valuable data afforded him.
The entire manuscript, involving as it necessarily does
many legal questions, has been submitted to Messrs. Red-
field & Redfield, whom the writer desires especially to
thank for their painstaking work. The author's thanks
are also due to Mr. D. D. Sherman for his able advice as
to many legal questions ; to Mr. Frank H. Edmunds for
information in regard to the presentation and protest of
negotiable paper; to Mr. I. L. Carroll for valuable data
in relation to stocks and bonds ; and particularly to Mr.
Maurice L. Muhleman, of the United States Sub-Treasury
at New York, for his uniform courtesy in supplying the
writer with statistical information, and especially in regard
to the United States Sub-Treasury ; and to Mr. William
Sherer, the present manager of the New York Clearing
House, for information in relation to that institution.
No one realizes more fully than the writer the liability
to error in a work covering so large a field, the informa-
tion for which must be drawn from many sources ; and
while he cannot even hope, despite his efforts to render
his work as free from error as possible, a complete immu-
nity therefrom, he asks for a fair consideration of the work
in its entirety.
CONTENTS.
PART I.
PRINCIPLES OF FINANCE.
CHAPTER I.
PAGE
Introductory Barter Value Barter Money Bullion Metal
Money Fiat Money Paper Money Government Regulation of
Money and Currency ......... I
CHAPTER II.
Capital Credit Interest Exchange Price . . . 27
PART II.
PRACTICE OF FINANCE.
CHAPTER I. ,
Money and Currency of the United States The New York Sub-
Treasury ........... 60
CHAPTER II.
Banks National Bank Act 68
CHAPTER III.
State Banks New York State Banks of Deposit, and Banking Laws . 90
v
vi CONTENTS.
CHAPTER IV.
PAGE
Methods of Business of Banks Loans Mutual Assistance Over-
Certification Reclamation Management Board of Directors
Officers and Employes . . . . . .no
CHAPTER V.
New York Clearing House ........ I3 2
CHAPTER VI.
Savings Banks 138
CHAPTER VII.
Trust Companies . . . . . . . . . .15
CHAPTER VIII.
Safe Deposit Companies Building and Mutual Loan Associations
Co-operative Loan Associations Mortgage and Debenture Com-
panies ........... 163
CHAPTER IX.
Private Bankers Brokers Stock Brokers Note Brokers Puts and
Calls 178
CHAPTER X.
Exchanges New York Stock Exchange ...... 194
CHAPTER XI.
Corporations, Officers, Etc. ........ 200
CHAPTER XII.
Stocks, Bonds, Interest Warrants, and Receivers' Certificates . . 209
CHAPTER XIII.
Commercial Houses Commercial Agencies ..... 230
CHAPTER XIV.
Transmission and Remittance of Money Money Orders Cheque
Banks Commercial Bills Cable and Telegraph Transfers . . 237
CONTENTS. VI 1
CHAPTER XV.
PAGE
Notes Endorsements Drafts Bills of Exchange Notary Presen-
tation Protest Notice of Protest Checks Course of Check
through a Bank Cashiers' Checks Certificates of Deposit
Letters of Credit Table Showing U. S. Treasurer's Valuation of
Foreign Coins Table Giving Weight of Alloyed and Pure Metal
of Units of Value of Principal Countries 246
CHAPTER XVI.
Inte r est Grace Legal Holidays ....... 268
GLOSSARY 277
INDEX 305
OF T
PRINCIPLES AND PRACTICE OF
FINANCE.
PART I.
PRINCIPLES OF FINANCE.
CHAPTER I.
Introductory Barter Value Barter Money Bullion Metal Money
Fiat Money Paper Money Government Regulation of Money and
Currency.
IN order that the subject of this work " Finance," should
be clearly presented and intelligently read, it is deemed
necessary to point out, if but briefly, the natural develop-
ment of its different principles ; and after the development
of those principles has been indicated, their application to
business and financial methods and systems will be dis-
cussed.
The various articles on the principles of Finance are not
intended to be exhaustive, but simply to lay a ground-
work for the proper understanding of those principles in
their application to the business of Finance.
First. As to the development of principles ; which it is
well to trace from their birth.
2 PRINCIPLES AND PRACTICE OF FINANCE.
In the earliest stage of human existence, when primitive
man secured or accumulated by effort or by accident
something which was either useful to or which was desired
by others, and for the possession of which they were will-
ing to part with some possession, such thing became val-
uable, and the principle of value was established.
So soon as an exchange was effected of one thing for
another, that minute the principle of barter came into be-
ing. It was not possible however that the possessor of a
particular commodity in excess of his immediate needs
should be able to exchange that commodity for all the
other commodities or things which he desired ; resort was
therefore had to the conversion of such surplus into some
intermediate commodity which the owner could use at his
pleasure in procuring what he wished, and upon the ex-
change of such surplus for this intermediate value or com-
modity, the third great principle of finance and the first
and chief function of true money was established. Nec-
essarily this intermediate value must be one of as nearly
as possible staple and indestructible value and hence nat-
urally would become not only an intermediate value, but
also the agent of divisibility of value, and by reason of its
possession of these qualities it naturally became the meas-
ure of the value of other commodities and the fourth
principle, a measure of value, arose.
So soon as this surplus product could be converted into
value of a permanent character, and thus made available
for future use, an accumulation of value or capital became
a fact.
Credit was surely created when the possessor of one
value delivered that value to another, receiving at the
time of the delivery a promise that at some future time an
equivalent in value would be given.
The first charge made for the use of capital or credit
was " Interest."
The money-changers were probably'the earliest bankers.
PRINCIPLES OF FINANCE. 3
They not only changed money, but kept it for others, and
loaned it at interest.
The simplest example of what has since developed into
exchange, is where A having a claim against B, and owing
a similar amount to C, directs B to pay to C, which being
done both debts are cancelled.
The assumption by early kings of the sole right to issue
coins and to compel their circulation, whether possessed
of the value stamped on them or not, was the beginning
of fiat money, and out of this assumption naturally grew
governmental control of both metal and paper money,
bankers and banks.
The money value of things is termed " Price," and
" Price " has existed ever since money has been used as
a means of expressing values.
The above constitutes all the real principles of Finance,
and on them, singly or combined, every transaction must
rest ; and to one or more of them every financial proposi-
tion is deducible.
We shall now discuss these principles somewhat in
detail.
Barter. The simultaneous and direct exchange of one
commodity, thing, or value, for another commodity, thing,
or value, without the intervention of an intermediate com-
modity, such as money, or the promise of some other
value or commodity, as credit.
Barter presupposes a recognition of property rights, as
a person would not be likely to make an exchange with
another except for what he believed and admitted to be
the property of that person. This recognition of property
rights marks the first step in the moral development of
man from the plane of the lower animals, where, without
regard to, or recognition of, the rights of others, he took
that which his wishes or necessities dictated, peaceably,
stealthily, or forcibly, as occasion required or his mood
suggested. When, however, owing to climatic conditions
4 PRINCIPLES AND PRACTICE OF FINANCE.
or the danger of destruction from other animals more
powerful and ferocious than himself, he found it neces-
sary for his protection and preservation to live with other
men, then a community of interest was created, the very
corner-stone of which was individual effort ; but individual
effort, in order to be put forth, must be sure of its reward ;
this reward must be recognized and accorded by others to
be fully enjoyed, i. e., property rights (value).
Value. Before proceeding further with the discussion
of barter we must define Value, the existence of which
must be anterior to barter, although barter may be the act
which frequently fixes the value of a thing.
Value the amount of other commodities for which a
thing can be exchanged in open market, the ratio in which
one thing exchanges against others, the command which
one commodity has over others in traffic, in political
economy distinguished from " price," which is worth esti-
mated in money, while "value" is worth estimated in
commodities in general, the quantity of labor, or of the
product of labor, which will exchange for a given quantity
of some other product thereof.
Hence, while value is in the first instance the creation
of labor and nothing which Nature supplies in such
abundance as to require no labor on the part of man to
adapt to his use has any exchangeable value, yet labor is
not the only element in determining the exchangeable
worth or value of a thing, but supply and demand are also
factors. As a broad proposition, however, the amount of
labor expended or required in the procuring or produc-
tion of a given article, and therefore the amount of labor
for which that article can be exchanged, indicates its value.
While values are created by labor, it does not follow that
all labor creates values, consequently only labor producing
some commodity or conferring some good for which man
is willing to part with some other commodity or service
need be considered.
PRINCIPLES OF FINANCE. 5
Limitation of quantity and capability of measurement
are two essential elements in order that a thing may
possess value. Another requisite is that the commodity
have in itself some quality or substance useful or agree-
able to man or necessary to the maintenance of other life
on which his depends, and by a selection fostered by
necessity and ranging over the period of human life these
intrinsic qualities of things have been discovered and
adapted to man's needs, and the possession of these quali-
ties in any substance constitutes, if not the greatest, at
any rate, a large portion of their value.
Barter Resumed. While transactions in barter are
perhaps fewer as civilization progresses, yet it is the real
basis of all trade and commerce, and the relative values
of commodities to each other, as fixed by barter, are what
govern now just as much as they ever did, and although
the merchant sells his wheat or cotton for so much in
money, that amount is regulated after all by how much
manufactured product or other commodities the wheat or
cotton, for example, will exchange for.
In order that even Barter should be practised, it im-
mediately became necessary that the respective persons to
the trade should agree upon some measure of the value of
the respective thing or things which they desired to ex-
change. The ultimate measure of this value was neces-
sarily the amount of effort put forth in the production or
procuring of the things to be exchanged, in other words,
the labor.
As long as barter was confined to individuals of the
same tribe, probably the article of most general use in the
tribe was accepted as such measure. Thus, among pas-
toral people, the sheep, horse, or cow was the measure of
value ; whereas, among agricultural people, a given quan-
tity of some cereal was doubtless used for this purpose.
As long as this barter did not go beyond the confines of
trade which, in its more restricted and technical mean-
6 PRINCIPLES AND PRACTICE OF FINANCE.
ing, is the dealing between individuals of the same com-
munity, a local measure of value was sufficient ; but the
moment it grew into commerce or the dealing between
communities or countries, or the individuals of different
countries or tribes, that moment another and more gen-
erally accepted standard became absolutely necessary.
We have now come to the consideration of one of the
functions of money which will be treated more in detail
under the head of money. We have neither the time
nor the inclination to trace the different standards of
value, nor do we believe that it could be here done to
advantage.
Metals, being the first commodities of general use by all
peoples by natural selection, became the measure of
value.
In this connection we naturally inquire why metals
should have been selected, as we know there must have
been good reasons, first why they were selected, and
secondly why their use should have continued.
We answer : First, because of their value the large
amount of value compressed into a small compass. Sec-
ond, their portability the ease with which they can be
taken from place to place. Third, their comparative in-
destructibility, metals being the least destructible of all
substances capable of receiving an impress marking their
value. Fourth, their homogeneity a given weight of a
particular metal being, or capable of being, made of equal
value. Fifth, divisibility the quality of being divided
into larger or smaller proportions without disproportion-
ate accretion or loss. Sixth, their stability of value i. e.,
the ratio in which they exchange for other values ; and
seventh, cognizibility, impressibility, or coinability mean-
ing not only a general recognition of their commodity
value, but also the ability to impress or stamp letters or
characters.
These conditions are essential, and the metal possessing
PRINCIPLES OF FINANCE. 7
most of these characteristics will by a law as certain as
that of gravitation, be chosen as the measure of value.
Mankind has found that gold possesses in a larger degree
than any other metal these essentials, hence its almost
universal choice among civilized nations as the measure
of value.
Barter necessitates immediate exchange, but it is not
always either possible or desirable to immediately deliver
or receive the article or articles, service or advantage
given or sought. Hence we naturally seek to convert the
product of our labor into some commodity of stable, in-
destructible, and well recognized value, with which we may
at our convenience secure what portion we desire of other
commodities or services. This brings us to the consider-
ation of the divisibility of value, and on this question it is
well to be somewhat explicit.
It is often erroneously asserted that money is necessary
for the purpose of divisibility, especially where the divi-
sion is effected at a time remote from that of the original
transaction. The following illustration will show that
such is not the case :
A farmer takes to market say a thousand bushels of
wheat. This he desires to exchange for other commod-
ities. Should he receive in exchange for his wheat, at the
time of delivery, one particular commodity of equal value,
the barter would be completed then and there ; but the
probabilities are that he would not need only one thing,
but many, some of which would not be possessed by the
person with whom he dealt, hence he would have to act
as his own distributing agent, making many transactions
in order to secure the different commodities for which he
was desirous of exchanging his wheat, and probably not
getting what he wanted at once or when he wanted it.
To avoid these numerous exchanges, and to economize
not only the farmer's time, but the time of those with
whom he deals, the merchant or distributing agent has
8 PRINCIPLES AND PRACTICE OF FINANCE.
arisen. To the merchant the farmer sells his wheat, and
from him receives either money an intermediate value,
exchangeable at any time for any of the many values
which he desires in exchange for such wheat or a credit
improperly called, in reality an obligation of the mer-
chant, which he can use as his necessities or wishes
dictate in the purchase of those commodities which he de-
sires. Or credit may have been extended to the farmer
in anticipation, or the value of the wheat may have been
advanced him in various other values before the wheat
was delivered.
This certainly is the method by which a large majority
of the country stores throughout the States are conducted ;
and while the intervention of credit or money as a
medium of exchange and divisibility would technically
destroy the character of the transaction as one in simple
barter, as a matter of fact it only facilitates the disposal of
values and avoids the necessity of the immediate consum-
mation of the final exchange, rendering it possible for the
parties thereto to receive such commodities at such times
as they desire.
Inasmuch as the agricultural products of the world,
while produced during different months in various coun-
tries, are still, generally speaking, only produced in each
country during about six months of the year, and as all
men must subsist upon that which has been produced, it
follows that man must make provision during those six
months for his subsistence and maintenance during the
other six months, and the surplus then produced must be
so exchanged as to provide him with a credit from the
ending of such season till the produce of the next season
is marketable. Hence credits occupy so important a posi-
tion in commercial life. It may be said, broadly speaking,
that, the world over, man lives twelve months on the
product of six months' labor, and that in these six months
he must provide for the twelve months which are to fol-
PRINCIPLES OF FINANCE. 9
low. This, perhaps, is not true to the same extent of
the peoples engaged in manufactures and distribution,
which after all are but auxiliary industries dependent
for their life upon those creative industries, of which
agriculture, fisheries, and mining are the principal,
these industries creating values, whereas manufactures
and distribution simply change the form of, and add to,
the value of the raw material. Although what has just
been said belongs more particularly to credit than to
barter, still, as credit is but the outcome of barter and
dependent upon barter, it has been thought best to here
insert it.
The business of the world is done strictly on the basis
of barter, and the vast credits which are extended are but
the representatives of the enormous transactions in barter ;
money, on account of its insignificant proportion to the
exchanges consummated annually, forming but a relatively
small item to credit in the commercial transactions of
the globe.
While a comparatively small percentage of the business
of the world is done by direct and immediate exchange
of one or more commodities or values for one or more
other commodities or values, money or credits nearly
always intervening as a medium for the purposes stated,
yet inasmuch as all commerce is regulated by barter,
money, which does not and cannot in any broad sense
either diminish or increase values, and is but a tempo-
rary medium in their exchange, must adjust itself to the
conditions of barter.
Having heretofore shown rather incidentally the relation
of money to barter, we now proceed to a more specific
consideration of the subject.
Money. Webster defines money as :
First " A piece of metal, as gold, silver, copper, etc., coined
or stamped, and issued by the sovereign authority as a medium
10 PRINCIPLES AND PRACTICE OF FINANCE.
of exchange in financial transactions between citizens and with
the government ; also, any number of such pieces ; coin."
Second " Any general or stamped promise, certificate, or
order, as a government note, bank note, a certificate of de-
posit, etc., which is payable in standard coined money, and is
lawfully current in lieu thereof ; in a comprehensive sense, any
currency usually and lawfully employed in buying and selling."
Money is, first, a thing possessing a universally recog-
nized intrinsic value, but not necessarily of a universally
exchangeable power ; and, secondly, money based upon
credit, t. *'., promises to redeem in some commodity,
usually gold or silver. For the purposes of convenience,
gold and silver and other metals, all possessing universally
recognized values, have been accepted as the money of
civilization, and all paper money (credits) or promises to
pay are payable in some one or more of these metals. It
may be well to remark parenthetically that while money
is currency, currency is not necessarily money.
All true money being itself a commodity, possessed of
an intrinsic value, used as a means to facilitate barter or
the exchange of one value for another, and being always
of a smaller aggregate value than the combined value of
the numerous commodities or values, the exchange of
which it is called upon to facilitate, must adjust itself to
this greater combined value, rather than that the greater
value of all other commodities should adjust itself to
money ; although money, being the standard of value,
the price of other commodities, as measured by money,
changes, and not the price of money. The purchasing
power of money in the markets of the world is governed
by its commodity value.
Hence it follows, should the ratio of increase of money
be greater than the ratio of increase of other values, or
should a given amount of labor produce a larger quantity
of bullion, then the purchasing or exchangeable power of
money becomes less, and other values, which are meas-
PRINCIPLES OF FINANCE. II
ured by it, greater, as was illustrated by the discovery of
gold in California, when, owing to the vast supply of gold
and the comparatively small output of labor required to
secure it, the relation between it and other commodities
was disturbed, and its exchangeable value became very
much less, and the relative value of the other commodities
to it very much greater. Should the ratio of increase of
money be less than the ratio of increase of other com-
modities, then the relative value of money becomes greater
and the value of all other commodities, compared with
this particular commodity (money), less ; but should the
other commodities maintain their relative value to each
other, the holders of other commodities are not -sufferers
thereby, as their relative value to each other is not dis-
turbed, and the holder of money is certainly just as much
entitled to receive the benefit of its enhancement in value
as he is liable to suffer the loss of its depreciation.
Paper money, or promises to pay, secured by a mort-
gage of either the income of a government or a compulsory
deposit or retention by an individual or corporation of a
certain percentage of bullion, is not and cannot in any
sense be considered true money, but should be designated
as currency, as it passes current in lieu of money, and as it
lacks the universality of value and exchangeable quality
which all true money does possess. Its usfulness as a
means of facilitating exchange or barter is measured by the
knowledge of the acceptor of such currency of the ability of
the issuer to redeem it in coin ; thus gold and silver, pos-
sessing as they do a universally known intrinsic value, are
receivable in every portion of the world, civilized and un-
civilized ; but a legal-tender note of the United States, or
a Bank of England note, would not be received in ex-
change for values by people ignorant of the ability of the
respective issuers or obligors to redeem such promises, or
to give for such notes an exchangeable value proportion-
ate to the value of the commodity transferred.
12 PRINCIPLES AND PRACTICE OF FINANCE.
Paper money is nothing more than a promisory note
payable on demand in a particular commodity (money).
Should either the government or the individual promising
to pay fail so to do the note would simply be a piece of
writing, obligating the issuer to the payment of that value,
and nothing more, and its value is therefore dependent
upon the ability of the issuer to pay.
One of the chief uses of money is as the measure of
value, and in the treatment of this aspect of the question
it is impossible to avoid some discussion of whether there
should be one or more measures of value, and whether it
be necessary that all money should be a measure of value,
rather than some particular kind of money. It does not
deprive a particular kind of money of its utility that it is
not the universally accepted measure of value, but only
deprives it of one function and makes it subsidiary in one
respect, as a measure of value, to the money which is such
measure ; nor does it deprive it of its intrinsic value, which
still remains, and is recognized in different proportions by
different peoples ; but for the convenience of commerce
it is not only best, but absolutely necessary, that some
particular form of money should be the accepted measure ;
and that form which possesses in itself the greatest intrin-
sic value, maintains the most uniform relative value, and
is the most convenient for use, will of necessity become
the standard of value, and other moneys will have their
value regulated by it, exactly the same as every other
commodity.
There can be but one standard of value, and that stand-
ard is fixed not by the laws of a particular country or even
a number of countries acting together, but by the general
consensus of opinion of sellers and buyers. Values are
fixed not in the districts where commodities are produced,
but in the large distributing centres, cities, where they are
fetched for exchange, and the values there agreed upon
are everywhere accepted. The value of a commodity is
PRINCIPLES OF FINANCE, 13
fixed not by its entire mass, the larger portion of which
is consumed by its producers, but rather by the surplus
which is exchanged. Thus the value of wheat and cotton
in the United States is fixed by the price of the surplus
sold abroad. In other words, that portion of a commodity
or product which seeks exchange in the markets of the
world for other commodities fixes the value of that larger
portion which does not. Practically all of the great con-
suming countries, England, France, and Germany, employ
the gold standard as the measure of value. In fact, over
80 per cent, of international commerce is directly figured on
a gold standard of value, hence gold maybe said to be the
practically universal standard ; and even in countries on a
silver basis, domestic prices being fixed and regulated by
the export prices, the silver coin is accepted as represent-
ing so much gold value. To repeat, values are fixed by
the exchangeable worth of the surplus of products in the
markets of the world. Gold is the standard employed in
those markets, consequently the universal measure of
value ; and while silver, some other metal, currency, or
other forms of credit may be used as gold's representative,
still gold is the standard of value in all countries having
any foreign trade, even though that metal may be prac-
tically unknown to its citizens.
Before discussing true money more in detail it is neces-
sary to say a few words about bullion, of which all true
money is composed. The definition usually given " gold
or silver in the bar or lump, coined or uncoined," while
inexact, and not one which could be accepted without
considerable limitation, is perhaps sufficiently near the
correct definition for our present purpose.
Bullion is bought and sold the same as any other com-
modity, the price thereof being governed by : I, the de-
mand ; 2, the supply ; 3, weight ; and 4, fineness. The
price of gold being always stationary, as it is the measure
of value, its actual value is determined by its purchasing
14 PRINCIPLES AND PRACTICE OF FINANCE.
power of other commodities, while the price of silver, and
other less valuable metals used for coin, is determined by
their relative value to gold. In the case of every metal it
is bought where it commands the least value and sold
where it commands the greatest.
The close relation between the shipment of bullion,
and a high rate of exchange on the point to which the
bullion is sent leads many to suppose that it is sent to
such points to pay a balance of trade against the country
from which it is shipped. This is not necessarily the case ;
but when, for any reason, the rate of exchange to the
point of destination reaches the cost of the shipment of
bullion, obviously there is no object in purchasing ex-
change, and as bullion may be sent at such times more
advantageously, and as most foreign houses at that time
buy, it is then shipped in greater quantities than when
exchange is simply at par, or in favor of the country
shipping ; and while this condition of exchange is looked
upon as favorable to its shipment, bullion may be shipped
at any time.
From the above it is evident that under ordinary con-
ditions the rate of exchange can never be greater than the
cost of the actual transportation of bullion, as it would
be shipped in such event.
The business in bullion is almost entirely carried on in
this country by private bankers, who are known as dealers
in bullion. Most of the houses engaged in this business
have agents in Europe, to whom they ship from here, or
who ship to them from Europe.
The scope of this work does not warrant us in treating
money from an historical standpoint further than is neces-
sary to emphasize certain fundamental principles. Con-
sequently, without any attempt to trace its gradual
evolution into its present forms, we will consider the sub-
ject as it presents itself to us at the present day and shall
therefore confine our observations almost exclusively to
the money of the United States.
PRINCIPLES OF FINANCE. 15
Our money, like that of many civilized nations, is now
divided into metal money (coins) and paper money (prom-
issory notes payable on demand). Both metal money
and paper money may be partly or practically wholly fiat
money.
Metal Money or Coins. It is not necessary here to
repeat the observations previously made as to the peculiar
adaptability of certain metals for use as money, and the
advantages of some metals over others for this purpose,
so we will proceed directly to the general consideration
of this subject. In order to consider which intelligently
we must understand the laws governing the coining of
metals.
Previous to the art of coinage, metals were used by
weight and fineness for money, which made it necessary
for the merchant to have at his command scales and often
crucibles to ascertain the same. The inconvenience of
this system was such as to demand some change, and the
rational solution was the division of metals into small
pieces of convenient size and uniform value, with such
value attested by some well known and responsible power,
and no power so fully met these requirements as the gov-
ernment. Hence, the early history of coins clearly estab-
lishes the fact that coinage was invariably regarded as a
prerogative belonging solely to and exercised only by the
sovereign power or government.
The art of coinage certainly does not date back farther
than the ninth century B.C., and the Lydians are sup-
posed to have been the first people to have used coin
money.
For various reasons the power to coin money should
only be reposed in the person or body of most widely
known power, solvency, and integrity, and this is neces-
sarily the state. There never has been any attempt at
lawful individual issue of coin. It required the govern-
ment to properly regulate the weight and fineness and
vouch for the integrity of the coins put in circulation.
1 6 PRINCIPLES AND PRACTICE OF FINANCE.
At first coins were very rude and easily counterfeited
and it was necessary to inflict severe penalties to guard
against this danger, but even these penalties failed to deter
the counterfeiting, mutilation, and clipping of coins, which
was made very easy by the practical absence of all protect-
ing devices and designs, which at the present day tend to
make the simulation of a well minted coin so difficult and
expensive as to deprive it of any profit.
One of the commonest and best known laws governing
coins is that in order to keep a coin in circulation the
bullion value of that coin should be a little less than the
face value, in fact enough less, that no probable fluctua-
tion in the market price of the metal of which it is com-
posed will render the commodity value of the coin greater
than its face value ; otherwise as soon as it becomes so, it
is immediately profitable to put the coin into the melting
pot and convert it again into bullion.
Another principle is, that a superior coin will not circu-
late side by side with an inferior one. The superior coin
being of greater value is either hoarded up and retired
from circulation, or, on account of the inferior coin becom-
ing the real measure of value, is converted into bullion.
The reason of this is very plain, as no debtor will pay his
creditor in a better or more valuable coin when he can
legally pay him in an inferior and less valuable one. Used
as money the value of the superior coin is no greater than
that of the inferior coin, whereas it is greater when used
as bullion. This principle is known as Gresham's law and
furnishes an explanation of the difficulty we have had
during the last few years in keeping gold in circulation
side by side with silver.
The working of this principle had been previously illus-
trated in this country quite as clearly at the time of the
discovery of gold in California, when, owing to the enor-
mously increased production of gold, its relative value to
other commodities was diminished, and the prescribed
PRINCIPLES OF FINANCE. I/
ratio between gold and silver fixed by the government
remaining unchanged, silver, the production of which had
remained practically stationary, was undervalued. Many
of our citizens who at that time possessed silver coin
exported it or had it melted up and converted into house-
hold articles ; and silver coins went practically out of cir-
culation.
It must, however, be borne in mind that while an in-
ferior coin if sufficient in quantity will drive the superior
out of circulation, it will only circulate at about its real
value, unless the difference between its face value and its
real value is guaranteed by some responsible government.
Fiat Money. This is money issued by a state with
presumable power to enforce its acceptance as a legal ten-
der in payment of obligations.
In this sense, of course, all money issued by the state is
fiat money, but in the more restricted view only money
possessed of no intrinsic value, or of a less intrinsic value
than its face value, is fiat money. And as a large quota of
money is not possessed of intrinsic value to the amount of
its face value, the difference between the two values is fiat
money. Paper money issued by a government is wholly
fiat money, whether secured by a deposit of securities or
of bullion.
The issue of banks, unless made legal tender by the
government, is not fiat money.
Paper Money. While this subject should be properly
treated under the head of " Credit," yet for the purpose
of convenience, and because as currency it acts in lieu of
real money, it has been decided best to discuss it here.
Until within the last few hundred years, a compara-
tively recent date in the history of money, paper money
was not used in Europe, although the Chinese are supposed
to have used it even before the Christian era.
Unlike coined money, the issue of paper money or
credits was never held to be a sovereign prerogative, nor
1 8 PRINCIPLES AND PRACTICE OF FINANCE.
did governments arrogate to themselves the sole power
of the issue of credits in this form and the consequent
restriction of its use by their subjects.
In the early European history of paper money its issue
seems to have been exercised almost exclusively by indi-
viduals and corporations.
If individuals and corporations could issue their prom-
ises to pay and exchange the same for marketable values,
why could not a government do the same? Many of the
European governments, on account of the frequent wars
in which their rulers were engaged, the incidental deple-
tion of their treasuries, and the necessity of raising money
with which to support large armies and procure supplies,
and having exhausted practically all other resources, were
compelled sooner or later to resort to this as a last relief,
although most have since funded such issues of paper
money in the shape of bonds.
The necessities of the European states, which com-
pelled the making or rather forcing of frequent loans
from their bankers, gradually created the device of the
governments issuing paper money ; but even yet govern-
ments did not deem it necessary to restrict the issue by
their subjects of credits in this form, and it is only as an
extreme measure that any civilized government has ever
issued or compelled the acceptance of this paper money
as legal tender, thereby making a forced loan and com-
pelling the persons accepting such loans to part with a
value without receiving any interest for its use.
All of the great European nations, with a few excep-
tions, while reserving to themselves this right, in case of
extreme necessity, as a great Avar, do not at present exer-
cise it, but have practically done no more than to restrict
its use to certain corporations complying with conditions
prescribed by them.
In this country the early issues of paper money by the
colonies previous to and by the confederated colonies
PRINCIPLES OF FINANCE. 19
during the War of Independence were attended with such
disastrous results that the Federal power issued no paper
money of its own until the early part of the late Civil War.
Up to the enactment of the National Banking Act in
1863, with the exception of the time during which the
United States Bank existed, all of our paper money was
issued by State banks, the different States delegating the
power of issue to banks complying with certain conditions,
generally the maintenance of a certain percentage in bul-
lion to the notes issued, etc.
In every representative government it must be borne
in mind that this right of issue of credits is one inherent
in the individual, and which he, through his representa-
tives, has delegated to the state or national government
for various purposes, chief among which is the securing of
greater uniformity of value and regularity of issue, under
conditions sought to make the acceptor of such credits as
safe as possible in receiving them.
After an experience of some seventy years it was proven
that even States, owing to lack of uniformity of require-
ments and conditions imposed by them upon the banks
within their borders, could not ensure a uniform and sound
currency. Not but that many of the State laws were
models in themselves, but they lacked uniformity. And
while some were admirable and furnished an excellent
groundwork for the National Bank Act, yet others were
very illy conceived and even worse enforced ; some States
allowing their banks to issue circulating notes against real
estate and various personal and other kinds of security.
It did not take long to establish the fact that land was
not a proper security for paper money ; for the reason
that all issues of paper, in order to circulate freely, must
purport on their face to be redeemable in coin, and while
the land might be of ample value to secure the notes, yet
it could not always be immediately converted into coin.
This fact was so generally recognized that all of the more
20 PRINCIPLES AND PRACTICE OF FINANCE.
conservative and successful State systems required the
maintenance of a metal reserve and a thorough State super-
vision of banks issuing circulating notes (see State Banks).
Paper money to be of any value must be secured by
some value, and when so secured it is a mortgage on that
value, and thereby restricts its use, and takes from the
channels of trade the amount of the particular commodity
by which it is secured, whether it be metal, some other
commodity, or real estate.
As the amount of paper money must be greatly in ex-
cess of the metal reserve by which it is secured, to make
its issue of any use, if proper safeguards are thrown
around such issue, on account of the increase in volume
(if needed), it may greatly facilitate commerce and trade ;
but while the currency has increased in volume it has de-
teriorated in quality, and no more value has been created ;
and the question narrows itself down to whether it is bet-
ter to have $100,000,000 in metal in active circulation, or
to tie that amount of metal up as a reserve to secure the
issue of say $300,000,000 of paper.
The theory of course on which paper money, secured by
a deposit of metal, is made to circulate, is that all its
holders will not wish its redemption in coin at the same
time.
Additional value and security are given to such money
when a government agrees to accept it in payment of a
certain class, or of all debts and dues to it ; and this
additional value and security is necessarily measured by
the proportion the entire issue bears to the amount re-
ceivable in payment of such debts, and the ability of the
government to continue to receive such money in this way.
As yet we have only considered paper money payable
in coin on demand. Now we must consider inconvertible
paper money issued by a government, or paper which is
simply a promise to pay, without any or a very small
metal reserve to secure it.
PRINCIPLES OF FINANCE. 21
To this kind of money there are many objections. The
most potent of which is that a practically insolvent
government if it were not insolvent it would not need to
issue this form of money mortgages its future revenues
to redeem notes issued to provide for its present indebted-
ness or for advances made presumably for immediate
uses. Next the great incentive to over-issue, and the
necessarily diminishing value of the notes. The placing
in the market of a large volume of government credits
unsettles values, disturbs commerce, and is certain first to
beget over-sanguineness and later on the inevitable de-
pression which follows.
The issuing of demand obligations payable at the option
of the holder, the first notice of which option the govern-
ment receives when the notes are presented for payment,
cannot but be dangerous to that government's credit ; as
it is almost certain that so long as the government is
amply able to meet its notes their payment will not be
demanded, but the very moment its inability is suspected,
the time when it most needs its available assets, then
the note holders demand payment. The issue of govern-
ment notes is generally effected only by either the actual
restriction of the issue of individuals, or the practical
restriction by making such issue unprofitable.
Again, the want of elasticity of such a currency ; the
issue of which is regulated by the necessity of the govern-
ment and not by the needs of commerce ; and no govern-
ment is in that close touch with commercial life which
enables it to increase such issue when necessary and to
contract the amount thereof when not needed. In fact the
necessities of a government generally prevent its acting
solely with a view to the interests of commerce.
Indeed, it seems a preposterous contention that the
debt of a government should measure the volume of the
people's currency, and that debt remain unpaid because
it might restrict the amount of currency in circulation.
22 PRINCIPLES AND PRACTICE OF FINANCE.
The fact is that the very existence of such a currency is a
discrimination against the non-governmental issue of
credits, and a restriction of the power of the utilization by
banks and others of their credits, the United States
Government requiring, in order to make a place for its own
notes and bonds, banks to deposit in its Treasury United
States registered bonds selling at say 117 in order to
secure 90 per cent, of their par value in notes, on which
issue they must pay the government taxes annually, mak-
ing the issue of notes of so little profit that few banks will
now issue them, and in reality depriving banks of the use
of one of their most profitable rights, the use of their
credit as currency, and absolutely prohibiting the exercise
of credits in this form by individuals.
Only banks or bankers and men who are in daily con-
tact with business life can be in a position to know the
demands of trade, and the regulation of the amount of
paper credits in the shape of money is best left under
certain restrictions in their hands. They should be given
the power upon the deposit of a certain percentage of
bullion with some central bank or banks or depositary
under the supervision and partial control of the govern-
ment to issue paper money when needed, and at their
option to retire such issue and reclaim the bullion
deposited.
In this connection it is earnestly suggested that no
good reason can be shown why a paper currency should
not be regulated by that same law of supply and demand
which governs all business transactions ; nor why the
government should take from the persons who are the
interpreters of that law in all other business relations the
interpretation of the law when applied to currency.
To recur to the subject of an inconvertible paper
currency. If such can be made a legal tender in the
payment of the government's obligations to individuals,
in order to protect the receiver it is necessary that he
PRINCIPLES OF FINANCE. 2$
should be able to compel his creditor to accept it in pay-
ment of his debt to that creditor, and to the same extent
that the first individual has been deprived by the govern-
ment of his rights to that extent can he lawfully deprive
his creditor of such creditor's rights against him. And it
is in order to prevent just this contingency arising, as well
as for other reasons, that many contracts are made paya-
ble in gold coin of a certain weight and fineness.
Postage-stamps, while in no sense credits or obligations
to pay, but simply evidences of pre-payment of a service
to be rendered, yet as they always can command that
service, and as it is a service in which the public stands in
constant need, are frequently used to remit small amounts.
Various forms of credit such as checks, drafts, notes,
bills of exchange, letters of credit, certificates of deposit,
cashiers' checks, etc., greatly assist, if they do not actually,
in many instances, take the place of currency.
In Queensland checks to bearer are used almost entire-
ly in place of money and form the general currency of
the people. This is an example however that we are
happily not called upon to emulate.
Government Regulation of Money. The regulation
of metal and token money has always reposed in the sov-
ereign power for reasons before stated.
The regulation of coinage and its issuance by the mints
of the various countries follow naturally from the exer-
cise of similar powers in earlier times, as does the issuance
of, or the restriction of the issue of paper money by the
governments of the present day the issue of token money
by the ancients.
First we will consider how the government obtains the
metal which it coins, and secondly, how that metal be-
comes distributed among the people.
Any possessor of gold may deposit the same with the
government and have it converted into coin and returned
to him minus a small charge for refining where the gold
24 PRINCIPLES AND PRACTICE OF FINANCE.
is less than y 9 ^ fine. This is practically an unlimited or
free coinage of that metal.
The government does not only coin metal belonging to
others, but also the bullion which it receives in payment
of obligations due it, which it, in course of time, distrib-
utes through its disbursing officers, banks, etc., in pay-
ment of its debts, the government paying out annually in
coin and currency over $125,000,000 in pensions alone.
The coinage of silver at different times in the history of
this country has been unlimited, except for the seigniorage
charge, which at present consists of the difference between
the commercial value of the silver in the coin and the face
value. Under the Sherman law, now repealed, the gov-
ernment bought about $50,000,000 of silver yearly at the
market rates per ounce, and coined it at a ratio to gold es-
tablished years ago. The difference between the two is
generally spoken of as the seigniorage. At other times the
coinage of silver has been, and is now, limited in amount,
whereas the coinage of gold has always been unlimited.
The possessor of gold bullion can, and always since the
formation of our government could, have it coined ; and
there has been no limit to the quantity, while the con-
trary is the case with silver, the government only coining
its own silver in such quantities as it needs.
Next we must consider the government's issue of paper
money and its restriction of the issue of such money by
others. This money when issued by the government
reaches the channels of trade in just the same way that
coin owned by the government does that is, it is paid out
in discharge of the government's obligations, frequently
in payment of bullion or coin furnished the government
by others and by them paid out to their creditors or in
purchase of commodities or values.
That portion of paper money issued by others and the
extent of which issue is restricted by the government is
first printed and issued by the government to the banks
PRINCIPLES OF FINANCE. 2$
on a deposit by the banks with the government of United
States bonds, as is more fully described in the condensa-
tion of the National Banking Act. These bills are then,
by the banks, loaned or used in the payment of their ob-
ligations, or the extension of their credits, and thus be-
come disseminated among the people.
Neither the Federal or State government nor any cor-
poration or individual can remain solvent and part with
money except it or he receive for the money an equiva-
lent value. It is true a corporation or an individual may
lend its issue to others on promises of payment, and
State, municipal, and county governments have at times
issued their bonds in support of, or have guaranteed,
semi-public and semi-private enterprises ; and even the
United States Government has guaranteed and paid the
interest on the bonds of certain railroads, but they have
never gone so far as to issue their money except in pay-
ment of their own debts already incurred, or in the pur-
chase of values. Nor is the government guarantee of the
payment of national bank notes a violation of this rule,
as at first glance it might appear to be, because the gov-
ernment not only secured by the institution of national
banks a safe means of placing its bonds on the market,
but by compelling a deposit of those bonds to secure
these national bank notes, as well as by the imposition of
a tax on their circulation, amply protected and at the
same time compensated itself for the risk assumed. In
other words, it made that part of its debt, which it com-
pelled national banks to purchase and deposit with it as a
condition precedent to operation, the security of the cir-
culating notes of these banks.
The government can neither give away money (pensions
are considered a debt) nor loan it, and if it did either to
any great extent the issue would become so large as to
render the small security in the shape of bullion and the
revenues available for the redemption of such issues prac-
26 PRINCIPLES AND PRACTICE OF FINANCE.
tically valueless, and the issue worthless. The govern-
ment should receive equivalent value in some shape for
every dollar put into circulation by it.
It has been suggested that the government might make
advances to certain classes, on different kinds of produce,
etc. in other words, go into the business of loaning money
on commercial paper and warehouse receipts. Bankers,
merchants, and warehousemen will do this now, on good
security. Certainly the government could not long con-
tinue to do it on any lesser security than the bankers,
merchants, and others are willing to accept. And if it
did, would soon be in a position where it could make no
further advances. And if one class is entitled to borrow
money from the government, why not all classes ?
Capital is not and cannot be created by printing
" greenbacks," paper money, neither by a government nor
by an individual, and the usefulness of paper money is
measured by the ability of the issuer to redeem such
promissory notes upon demand. Should the issuer part
with them without receiving an equivalent value, he places
himself in a position where whatever security exists for
their payment must soon be exhausted, and where there
is no income to provide for the unpaid issue.
The necessity of government supervision and control of
the issuance of both coin and currency in the shape of
money has previously been commented upon in the article
on " Money," and need not be here repeated.
As the financial operations of the government with
business life are usually consummated not through the
Treasury at Washington, but rather through its sub-
treasuries and fiscal agencies (national banks, generally),
outside of mentioning the amount of money in the Treas-
ury, it has been thought best to describe the operations of
a sub-treasury, in preference to those of the main Treasury.
As that in New York is the largest and most important, as
well as fairly typical of the others, that has been chosen.
CHAPTER II.
Capital Credit Interest Exchange Price.
Capital. In order to arrive at any true understanding
of the meaning of this much-used word, we will have to
consider it, first, in the broader definition accorded it in
political economy, and secondly, in the more restricted
sense in which it is used in commerce.
In political economy capital is that part of the product
of industry not needed for immediate consumption, and
which may be used for the support and maintenance of
life during a subsequent period of productivity. Capital
is the surplus beyond the present necessities: in the case
of an individual, of that individual ; in the case of a com-
munity or state, of that community or state. Capital is
the accumulated product of past labor upon natural
objects, over and above the immediate needs of mankind
and the animal or mechanical labor which he calls to his
aid, and which may be used at a future time. The real
capital of either a man or a community is that portion of
his property on which he may subsist during some future
period, or that which he may exchange for such subsist-
ence. Wheat, corn, rye, rice, and other cereals, cattle,
hogs, sheep, etc., wool, cotton, and the skins of wild ani-
mals are practically the only forms of capital whose value
is always real, and not, as in the case of precious stones
and many other things, almost wholly dependent upon
27
28 PRINCIPLES AND PRACTICE OF FINANCE.
their exchangeable value for the above-named necessities.
Few circumstances could arise where these things would
not be of value, whereas under many circumstances
metals or precious stones would be of no value to the pos-
sessor. In fact they derive their only value from a surplus
of the necessities of life, the exchange of which they are
largely used to facilitate, and as that surplus is greater or
less their value increases or diminishes.
Capital is often described as a moving force, and the
fact that it is the surplus which makes possible the con.
tinued use and development of wealth and property by
providing food, raiment, and other necessities, as well as
luxuries of life during this time, is one of its distinguish-
ing features from property, or wealth, or value. And yet
capital is property, capital is wealth, but it is only that
part of property or that part of wealth which, by afford-
ing man and his agents subsistence during the period of
the development and maturing of the labor expended
upon wealth or property, makes that development possi-
ble. Capital as the support of labor is the active force,
acting on property the passive object.
Capital is subject to the same laws which govern the
whole universe ; it is created, matures, and passes away.
Only the most insignificant portion is of a character which
renders its disuse without loss possible. Practically the
whole of capital, being composed of the articles and com-
modities necessary for the maintenance of life, and there-
fore of a nature not admitting of permanent preservation,
must needs be used in order to supply labor with the
power to re-create more capital.
While an individual may add to his capital by dispos-
ing of a portion of his property, the relative amount of
capital to property in a community or state cannot be
affected by any such transfer unless the capital is fur-
nished by some other community or state ; such trans-
fers between its own citizens cannot alter the relation of
PRINCIPLES OF FINANCE. 29
capital to property, but if beneficial to both persons it may
afterwards result in increased productivity.
It cannot be too strenuously insisted that land is not
capital, but that its whole value is dependent upon its
adaptability to the use of capital upon it.
Secondly, in its restricted, commercial use, capital is
either money or what may readily be converted into
money without subtracting from the earning capacity of
the industry in which it is invested. Thus the net earnings
of a factory after the payment of all charges, or the funds
or securities, things or values which may be used without
diminishing its plant, is capital, but the sale of its fixtures
or machinery would not be in any sense capital, especially
if they were necessary to its proper conduct. This inter-
pretation is so generally accepted that the results of all
sales of machinery, fixtures, or equipment are invariably
recorded in the books of all properly managed companies
as belonging to their respective accounts and forming no
part of capital.
We will then assume capital to be the fund used in the
actual conduct of a business, the place or plant and the
fixtures or machinery necessary thereto having been paid
for previously or provided for out of other property.
While by many stock in trade is regarded as capital,
which in the broader definition given the word by politi-
cal economists it certainly is, yet when used commercially,
and considered as the surplus fund by which the business
is conducted during the interval between the purchase
and sale of this stock, such a treatment, while theoreti-
cally correct, is unwise and inexpedient.
What ratio should capital bear to the business trans-
acted ? This is a question which nearly every business
man has at some time asked. So much has to be taken
into consideration in attempting an answer that most
men, appalled at the task, do not attempt it. Certainly
only the most general rules can be suggested, so much
30 PRINCIPLES AND PRACTICE OF FINANCE.
depends upon the nature of the business, the conditions
of purchase of stock and the sale of product, the time
given the purchaser, and the time he in turn extends to
those purchasing from him ; the variations in the price of
both the raw material and the manufactured product, the
rate of interest which capital commands in the open mar-
ket, the condition of the country, and a hundred other
things have to be taken into consideration in answering
this question as to any particular industry. Of course,
less capital is required to conduct a commission business
than a business where the goods are purchased outright
and sold again, but even here there must be sufficient
capital to conduct the business until commissions are
earned and received, to make necessary advances, etc.
In most trades or businesses there is some ratio which
careful men consider necessary to maintain under even
the most auspicious circumstances. There should certainly
be enough capital in a manufacturing business to run the
business, pay all expenses, labor, etc., and leave a moder-
ate reserve fund on hand, from the time of the purchase
of a stock until that stock is made up, sold, and paid for.
Where the time consumed is short, less capital is required
than where it is long. By way of illustration we will take
a factory whose annual output is $1,000,000, ten percent,
of which, or $100,000, is profit. $500,000 represents the
cost of raw material, and $400,000 of labor, taxes, insur-
ance, etc., and which is divided into four purchases of
stock, of four periods of three months each. The cost of
running the factory for three months would thus be $225,-
OOO, or $900,000 annually. It would seem that $225,000
would be the smallest sum with which such a factory
could be safely and comfortably run ; and this would in-
volve turning over the whole capital four times in a year
to reach the figures given. A great many factories, how-
ever, are not run on this cash basis, but on a credit basis,
in which event the owners must, of necessity, pay for the
use of the capital of others during the interval between
PRINCIPLES OF FINANCE. 31
the purchase of the raw material and the sale of the
manufactured product.
In the case of a store carrying a stock of say $ioo,ooo r
the amount of capital is dependent upon the length of
time required to consummate a sale of the stock. In
most retail businesses the goods are sold before the whole-
sale merchant is paid, when the money received from
their sale is used to pay the wholesaler, in which case a
comparatively small capital is required. The ratio is
further affected by the amount of bills payable and
bills receivable. Capital should always be sufficient to
allow for a 20 per cent, depreciation in the value of the
stock.
Capital to be available need not be kept uninvested,
because good investments are readily converted into
money at a profit ; hence the large holdings by business
men of bonds and stocks which have a ready market.
Capital, if insufficient for the accomplishment of the
object aimed at, is often lost, sometimes only partially,
other times wholly. The most fruitful source of bank-
ruptcy is the undertaking of too great enterprises with
insufficient capital. Especially is this true where the
enterprise is away from the large money centres. On the
other hand must be borne in mind the danger of allowing
capital to remain inactive, which is attended in the aggre-
gate with almost as serious results, although perhaps not
so apparent in individual cases.
Unemployed capital enforces idleness, which means a
decreased production of values, consequently a diminished
demand for other values. Active employment of capital
on safe lines means just the reverse.
Credit. Credit is the belief, founded upon a promise
that is, contract, expressed or implied by which the
possessor of a given value surrenders it to another, with-
out at the time of such transfer himself receiving an
actual equivalent, but instead thereof a promise, ex-
pressed or implied, to deliver a stated value at a future
32 PRINCIPLES AND PRACTICE OF FINANCE.
time. Credit is trust, confidence ; it is a reliance upon a
written or implied obligation on the part of another a
trust in man's honesty.
The very first element of credit would seem to be the
conviction that the person to whom a credit is extended
is and will be in a position to fulfil the promise on which
such credit is based, as no sane man would extend
credit to a person whom he knew to be incapable of meet-
ing the obligation incurred ; this would not be credit, but
benevolence or foolishness, as the case may be.
The importance of credit and its proper regulation in
financial matters can hardly be too strongly dwelt upon.
It is the corner-stone of all financial systems ; and no
matter how much money there is in a country, there can
never be enough to take the place of credit. Hence any
impairment of credit causes more disturbance in commerce
and finance than the locking up or taking out of circula-
tion of hundreds of millions of bullion or other values.
Credit is equal in amount to nearly 90 per cent, of the
aggregate of all marketable values, for the reason, speak-
ing broadly, that credit will be extended to that amount,
with the pledge of the values as security, and money is
only called upon to do what credit cannot. Money (coin)
is only equal in volume in the United States that is,
that portion of it in circulation to about 3 per cent, of
annual marketable values. The statements frequently
made to show the rapidity of the circulation of money,
the most common of which is that the annual clearings of
the clearing houses of the country aggregate about
$62,000,000,000, would seem to indicate that each dollar
(the amount in circulation being little more than one and
a half billions, one third of which is currency) had changed
hands about forty-five times ; but when it is remembered
that clearing houses are simply creations of banks them-
selves emporiums of credit for the purpose of facilitating
their methods of setting off credits against debits, and
PRINCIPLES OF FINANCE. 33
debits against credits, it will be perceived that it does not
at all show the rapidity of the circulation of money, but
rather, as compared with credit, what an insignificant part
money plays in the business of the nation. The only
function money performs in the clearing-house business is
the settlement of balances, which average in New York
less than 3 per cent, of the clearings, and it is probable
that a ratio of one to twenty is maintained throughout
other business operations, as that is the relation money
bears to credit, and there is no good reason to believe
that money circulates any faster than does credit,
especially if we bear in mind what a large part of our
money (see Paper Money) is simply credit.
In commerce, money as an intermediate value is used
largely as the auxiliary of credit, or, to use a bookkeeping
term, " to make the petty cash disbursements," and to
make change between values ; and no matter how rapidly
it might be made to circulate, as its circulation to be of
most use must be largely at those seasons of the year when
practically the whole agricultural interests of a country are
debtors, and debtors to an amount greatly in excess of the
whole currency of the country, it is evident that then it
can only assist credit.
To illustrate the credit system of the country :
The planter or farmer obtains his supplies during the
growing of his crops from the factor, on credit, pledging
the crops as security. These supplies the factor has pur-
chased from various merchants, on credit, securing such
advances or credit by his paper (notes). The merchant
obtained the same from the wholesale dealer, on credit,
securing such credit by a transfer of the factor's notes.
The wholesale dealer bought the same from the producer
or manufacturer, on credit, either his own or his bank's,
depositing with the seller his paper, or that of others in
his possession, in each instance the credit being based
primarily on the crop to be produced by the farmer.
34 PRINCIPLES AND PRACTICE OF FINANCE.
When the crop is grown and about to be harvested,
then the large money centres advance the local banks, on
a rediscount of paper, the sums necessary to harvest such
crops, which sums the local banks advance to the farmers,
and the farmers pay to the laborers, who in turn pay it to
the local tradesmen, who reimburse the wholesaler, and
so on until it reaches the original holder of the commod-
ity which the laborer purchased, and for which he has
been paid in money ; but this is but a small item in the
general transaction.
Transportation companies now bring the crops to mar-
ket ; the factor gives the company his check, which it de-
posits in its bank, a large part of which is consumed, per-
haps, to take up advances made by the bank during the
summer months. The crop is sold by the factor, who
draws upon the purchaser; the factor deposits his draft to
his credit in his bank, and after deducting from the pro-
ceeds of the sale his advances, interest charges, insurance,
etc., remits the planter the balance to his credit, often in
a check. The factor gives the merchant his check, which
he in turn deposits, and draws his own against in favor of
the persons to whom he is indebted, and so on until the
persons who first extended the credit are repaid, and then
not in money, but in credits, or in the ownership of a
value, their credits when obtained being largely used to
enable them to purchase other values, which they again
transfer on credit. The laborers and small tradesmen
are practically the only persons paid in money.
Careful financiers and good business men rarely extend
credit secured by anything less than a real value of great-
er amount than the credit given, the exception to this rule
being in the case of corporations, whose continuance is a
matter of considerable certainty, and whose earnings are
capable of close estimate. The earning capacity of an
individual is not a proper basis for credit, for it may cease
at any moment.
PRINCIPLES OF FINANCE. 35
Purchases of bonds are simply credits to corporations,
secured by their plant, franchises, and a first interest on
their net earnings.
Credit being, next to value itself, the most important
thing a person can possess, cannot be too carefully
guarded. Its worth is so well recognized that men are
anxious to purchase the credit of others whose credit is
widely known, and banks, corporations, and individuals
sell their credit to those whose credit is not so good or
generally recognized. In fact, the largest source of reve-
nue of many private bankers is a sale of their credit in
various forms, such as letters of credit and bills of ex-
change.
Interest. Interest is the charge made by the lender to
the borrower for the use or opportunity to use capital,
money, or credit, and is stated in terms of money. This
charge when paid at the time the loan is made is deducted
from the amount of the loan and is known technically as
" discount." The rate of either interest or discount
charged is called " per cent." The sum on which the
charge is made, the amount of the loan, is the " princi-
pal."
Interest is charged not only on loans but on debts
overdue, whether converted into the form of a loan by
the consent of the creditor to their payment at a future
date, or when, without such consent, a debt remains unpaid
after it is due.
Interest due on debts, in the absence of an agreement
expressed or implied by the custom of trade, is collectible
at the prescribed legal rate,, and no higher rate can be
collected.
The distinction between the current or market rate of
interest and the legal rate must be borne in mind. The
legal rate is an arbitrary one fixed by law, whereas the
market rate is governed by the conditions and principles
about to be explained.
36 PRINCIPLES AND PRACTICE OF FINANCE.
The market rate of interest is not necessarily governed
by the quantity of money available in a particular com-
munity, because interest is not only a charge for the use
of money, which bears a comparatively small ratio to
capital, but is the charge for the use of capital itself, as
well as credit, and capital and credit may be plentiful in
the same community in which money is scarce. For this-
reason the total amount of money per capita in a given
country is a very slight factor in determining the interest
rate.
The rate of interest or the price charged for the use of
capital or credit or money is governed by the earning
capacity of money, capital, or credit when employed not
in any one particular industry, but in all. Although it
must be borne in mind that the whole earning capacity of
capital, and in this relation when the word capital is used
it is meant to include capital, money, and credit, must be
greater than the rate of interest charged, otherwise there
would be no object in the borrower employing capital and
paying out to the lender the entire profit of its employ-
ment. Consequently the earning capacity not only of
capital but of man must be taken into consideration.
For instance, A, who by the employment of $100,000
could make a profit of $10,000, would doubtless be willing
to pay 5 per cent, for the use of that $100,000 if he were
content with $5000 in payment of his services in the em-
ployment of that capital ; but C, who could by its em-
ployment make a profit in his particular business of not
more than $5000, would certainly be unwilling to pay the
whole amount of the earnings of that capital plus his own
labor for its employment. And C's refusal to pay so
high a price for its use would tend to lessen the rate of
interest.
Where capital is plentiful and the wage of labor is
small, interest charges are low. Where capital is scarce
and the earning capacity of man great, interest charges
PRINCIPLES OF FINANCE. 37
are high. The truth of this proposition is borne out by
the rates of interest prevailing in older countries and in
the newer countries, and even in different sections of our
own country ; on the Atlantic seaboard, especially in
the Northern and Eastern States, the market rate being
comparatively low, while in the Southern and Western
States it is high.
The rate of interest is further regulated by the risk
incurred, and the greater the risk necessarily the higher
the rate of interest. Competition is also an important
element in determining the rate, as is evidenced by the
fact that in communities where practically the whole
available capital is reposed in few hands the rate is higher,
because of their monopoly of capital ; while in communities
where that capital is held by many, all anxious to lend
and coming into competition with each other, it is neces-
sarily lower. In other words, the law of supply and de-
mand is here as potent as in regard to any commodity.
Another, if not one of the chief factors in determining
the rate of interest, is the cost of the transportation of
values, the transmission of money and credits, and the
ease and rapidity with which they can be made, and this
is certainly meant to include exchange between different
countries. The more highly perfected and instantaneous
communication between different countries, cities, and
parts of the same country becomes, the more uniform
must be the rate of interest. For under these conditions
of practically unrestricted movement, capital immediately
seeks the place where it can command the best price, and
this inflow necessarily tends to equalize that rate with the
rate prevailing elsewhere where the risks are proportion-
ately the same.
If the rate of exchange or the cost of the transfer of
money or credits is a factor in determining the rate of
interest, it is equally true that the rates of interest pre-
vailing in different places, when very disproportionate,
38 PRINCIPLES AND PRACTICE OF FINANCE.
causing a rapid transfer of credits or money, also affect
the rates of exchange.
In relation to the legal rate of interest, the principles
before stated apply with modified force on account of
governmental interference with their natural operation,
and while it is true that in many States there are no laws
prohibiting the collection of any agreed rate of interest
between borrower and lender, and that the legal rate is
usually fixed not to interfere with private contracts, but
to protect debtors against unfair exactions on the part of
their creditors, yet in other States even the collection of an
agreed rate of interest beyond the legal limit is prohibited,
and the lender exacting such an illegal rate pays the pen-
alty by the forfeiture of double the amount of his interest.
Banks, insurance companies, and other corporations
deriving their powers from Federal or State governments
are generally restricted by those governments as to the
rate they may charge.
But this is hardly the place to enter into a discussion
of the legal rate of interest prevailing in our different
States, the laws in regard to which as well as the pre-
scribed rates differing very widely.
(See Interest Rates of States, end of book.)
Exchange. Exchange is one of the most difficult
terms in finance to accurately and yet comprehensively
define, but in a general way it may be said to be that
operation by which, through the setting off of credit
against debit and debit against credit, the actual transfer
of so much coin, bullion, or currency is avoided.
Exchange is divided into Domestic Exchange, that be-
tween different portions of the same country, and Foreign
Exchange, that between a city of one country and a city
of some other country, the principles being exactly the
same in either case.
As an illustration of a transaction in simple foreign
exchange :
PRINCIPLES OF FINANCE. 39
Suppose A in New York owes B in London $1000, and
C in London owes D in New York $1000, then there is
$1000 owing in London to New York and $1000 owing
in New York to London. Upon A in New York paying
to D in New York $1000, and C paying to B in London
$1000, A of New York has by this transfer paid his obli-
gation to B in London, and C in London has at the same
time paid his obligation to D in New York ; but A in
New York would have no means of knowing that C in
London owed D in New York a like sum, nor would C in
London know that A in New York was in debt to B in
London in a like amount. A in New York goes to a
dealer in exchange (a banker) and buys a bill of exchange
on London to pay his indebtedness to B. Meanwhile, C
in London buys a bill of exchange (for the purpose of
this example, from the same house, which has offices in
both cities), to pay his debt to D in New York. The
dealer in exchange, upon comparison, finds that his New
York house has to remit to his London house $1000, and
his London house to his New York house a like amount to
effect the payments for which the bills were purchased ;
but instead of doing this, he simply pays at his New York
house to D the money which A has paid in for his bill of
exchange to pay B, D having in the meantime received
from London a bill of exchange from C payable at the
New York house. The London branch, in like manner,
pays out to B, upon presentation of his bill of exchange
purchased by A in New York, the money paid in by C in
London to secure his exchange in favor of D in New York,
the whole transaction being accomplished without the
transmission of one dollar across the Atlantic.
The principle here laid down applies with equal force
whether the amount of the indebtedness of A to B is the
same as the indebtedness of C to D, the only difference
being that should the amount owing to London be greater
than that owing to New York, then New York deducts
4<D PRINCIPLES AND PRACTICE OF FINANCE.
from the actual transmission of money, the entire amount
which London owes her, and remits the balance, and vice
versa in the case of New York.
No matter how many debtors in New York remit to
creditors in London, nor how many debtors in London
remit to creditors in New York, the amount of New
York's credits against London's debits are offset against
New York's debits to London's credits, and London's
credits against New York are offset against her debits, and
only the difference between London's debits less her
credits, the former of necessity being greater than the
latter if London is called upon to remit, is sent to New
York, and just the reverse in the case of New York that
is, the city whose debits are greater than her credits being
the one which must remit to the other.
As these debits and credits are constantly changing,
being at one time in favor of one city or country and at
another in favor of the other, and there being no specified
date of settlement of all houses or dealers in exchange, it
naturally follows that the actual transmission of money
merely to pay balances is resorted to with little regularity.
In fact, herein comes the element of premium and dis-
count of exchange, so termed ; it being always regulated
by the debtors' available supply of bullion, with which to
pay balances, the cost of the transportation of that bul-
lion from one place to the other, and by the rates of in-
terest prevailing in the two places.
As business men are constantly incurring obligations
due in the respective cities, as soon as exchange sells at a
discount in New York the New Yorkers buy in anticipa-
tion of their wants, and when exchange is at a discount
in London the Londoner buys for the same reason. This
tends to equalize and steady the price of exchange. Of
course, some men simply buy exchange as a speculation,
purchasing at a discount and holding it against the time
when it can be used at a premium. Nor is this an abso-
PRINCIPLES OF FINANCE. 41
lute tying up of that amount of money, as bills of exchange
can be used as collateral.
Exchange between cities in the same country is gov-
erned by the same principles, and needs no further ex-
planation than to say that the forms of the bills are not
usually the same as those used in foreign exchange, often
being simply a cashier's check on his bank, payable at
some correspondent institution, or a letter introducing a
depositor to a correspondent and certifying to the amount
of his balance, drafts against which such correspondent
pays and charges against the writer of such letter.
While these are the principles upon which exchange is
based, the complexity of our relations is such that com-
mercial usage has so far outgrown these primitive princi-
ples as to almost entirely obscure them ; in fact, they are
rarely remembered, and to-day in the money centres a man
can buy a bill of exchange from dealers payable in almost
any city in the world, however remote, despite the ab-
sence of credits as offsets to such bill ; but if that city has
no commercial relations with the city of issue, or with
another city having relations with the first city, which is a
very rare thing, it is not in any sense a matter of exchange,
but simply the transmission of so much money, of which
the bill of exchange is simply a forerunner, the banker in
the city of presentation paying the same, and in due
course receiving the amount of the bill plus his charges
in coin or bullion.
This naturally leads to a discussion and explanation of
what for a better name might be called " complex ex-
change," as contradistinguished from simple exchange-
that is, an exchange which is not effected between city
and city, but bet\veen one place and another through the
intervention of one or more other places. Take, for in-
stance, New York, which effects most of her exchange on
Rio Janeiro through London, which is accomplished in
the following way :
42 PRINCIPLES AND PRACTICE OF FINANCE.
A in New York owing B in Rio Janeiro $1000, buys a
bill via London ; C in Rio Janeiro, owing D in New
York $100, buys a bill on New York via London ; while
E in Rio Janeiro, owing F $900 in London, buys a bill
on London ; and G in London, owing H in New York
$900, buys a bill on New York. Upon the London house
paying F in London $900, the Rio Janeiro house paying
B in Rio Janeiro $1000, the New York house paying to
D $100 and $900 to H, the debts of all these persons to
each other have been paid. In other words, Rio Janeiro
uses the $1000 to her credit in London, payable from
New York, in payment of her debt of $100 to New York
and $900 to London, while London uses the $1000 so
paid by Rio Janeiro in payment of Rio Janeiro's $100
debt to New York, which she has purchased, and her own
$900.
The same laws that govern simple or direct exchange
also apply to complex exchange, and need not be repeated,
except to say that our credits in London are applied
against our indebtedness to Rio Janeiro, and her debits to
London are settled by her claims against us.
Domestic exchange is figured in one currency, and is
consequently simpler than foreign exchange, which has to
be calculated in two currencies, that of the country of the
purchaser and that of the country of the purchasee, and
in the case of complex exchange in three currencies, first
the currency of the place of purchase, which must be
converted into the currency of the place where such ex-
change is payable. All foreign exchange is calculated on
a gold bullion basis, i. e., that an ounce or a part thereof
of gold of a given fineness possesses exactly the same
value in all parts of the world.
The relative value of the currency of each country to
such gold bullion must be first ascertained before such
conversion from one currency to another can be made,
and this is rendered doubly necessary from the fact that
PRINCIPLES OF FINANCE. 43
the bullion value of coin is generally less than its face
value. Thus in remitting $1000 United States money by
means of exchange to Mexico, assuming the transaction
to be one in simple foreign exchange between this country
and Mexico, Mexico's currency being on a silver basis
and ours on a gold basis, it would be necessary first to
determine the relative value of the Mexican silver dollar
to our gold coin ; how many Mexican dollars are the
equivalent in value of a thousand dollars United States
money. This having been determined, the " par of ex-
change " between the two countries has been ascertained.
Next is calculated the exchange premium or discount, as
the case may be, existing in favor of the one or the other
country, which, in the case of a discount, would be sub-
tracted from the cost of such exchange, and in the case of
a premium added, and vice versa in the case of Mexico
remitting to the United States. Should, however, this
transaction be effected by way of London, it would be
necessary first, on the same gold bullion basis, to convert
$1000 United States money into pounds, shillings, and
pence, adding the premium or subtracting the discount,
then to convert the pounds, shillings, and pence into Mex-
ican money with the discount from London to Mexico
subtracted, or the premium added, the invariable rule
being that the purchaser receives the benefit of the dis-
count when the exchange is favorable to him, and pays
the premium when it is against him.
Owing to causes and conditions too numerous to detail,
the relative value of one currency to another is constantly
changing, and obviously it would result in great confusion
and wrong to allow this relative value to be fixed by a
few dealers in exchange. To avoid this confusion, lack
of uniformity, and possible wrong, as well as to protect
both the buyer and the purchaser, houses known as
"arbitrage houses," which are the principal banking
houses doing an international business, daily agree upon
44 PRINCIPLES AND PRACTICE OF FINANCE.
such relative values, and the values set by them are
accepted by both purchasers and sellers.
Foreign exchange is calculated and sold in the currency
of the country where purchased and paid in that of the
country in which it is payable.
The same rule applies in the case of all foreign ex-
change. It is calculated in the unit of value of the
country where purchased, and remitted in the unit of
value of the country where payable. In Germany it is
calculated in marks, in France and Antwerp in francs, in
Amsterdam in guilders. The relative value of the coins
of the principal commercial countries will be found in
table " Relative Values of Moneys."
The premium on, or discount off, foreign exchange is
not, as in the case of domestic exchange, stated in per
cent., but in an addition, in the case of a premium to, and a
subtraction, in the case of a discount from, the relative
value of the respective currencies, viz. : $4.86^ being the
par of sterling exchange, when exchange sells at $4.85 it is
at a discount, and in like manner when it sells at $4.88, it
is at a premium.
Selling Exchange. So far only the buying of ex-
change by persons wishing to remit in discharge of obliga-
tions has been treated of, but clearly if banks will
purchase or advance money on drafts, why should not
dealers in exchange purchase the claims of persons hold-
ing demands against others residing elsewhere, instead of
waiting for these persons to remit? They do, and this is
termed Selling Exchange.
The volume of business done in this way is probably
greater than that done in the buying of exchange, as com-
paratively few creditors now wait for their debtors to re-
mit, but instead, by the selling of their demands in the
shape of exchange, payable, as the case may be, on presenta-
tion, or at thirty, sixty, or ninety days, they realize the
amount owing by such debtor at once instead of having it
tied up in the shape of bills receivable.
PRINCIPLES OF FINANCE. 45
Necessarily the same system of offsets of credits against
debits and debits against credits above explained in regard
to buying, applies in regard to selling, the only difference
being that the dealer purchasing the exchange occupies
the position of the person from whom it was purchased,
and presents the same through his London agents, when
due, for payment to the person against whom it is drawn.
Foreign exchange, payable at a future date, can only
be sold to a dealer at a discount, as such dealer must ob-
viously receive interest on the amount of the transaction
from the date of purchase to the date of payment, else he
is deprived of the use of that amount of money and the
same is used by another without any compensation ; he
has also incurred the risk of being unable to collect his
bill of exchange when presented for payment, which risk
ought not to be assumed without his receiving therefor a
premium sufficient, considering the financial standing of
the payee, to compensate him. It is true that he is usually
protected by the bills of lading of the goods against which
such exchange is drawn, and of which bills he becomes
the owner, but in the case of a thirty- or sixty-clays bill of
exchange this cannot apply, as the goods may have been
delivered and used before the exchange is presented for
payment.
Further, there must be taken into account the probable
condition of the exchange market at the time such bill
becomes due, which, owing to the general uniformity of
balances for or against certain countries at a given period
of the year, can generally be closely approximated. If at
the time of the maturity of such bill it is probable that
exchange against such country will be at a premium, then
clearly the amount of this probable premium must make
such exchange still more valuable and necessitate a still
further premium, but should it be probable that exchange
at said time will be at a discount, then the amount of such
discount should subtract that much from the price of
said bill.
46 PRINCIPLES AND PRACTICE OF FINANCE.
Prime exchange is that issued by houses of known sol-
vency, whose bills are everywhere accepted, and the char-
acter of whose credit is beyond question.
A large business is done in the buying of bills of ex-
change payable at a future date, sometimes as long as
ninety days, in anticipation of obligations then falling
due, in consideration of the fact that exchange may be at
a discount at the time of purchase, and possibly will be at
a premium at the time the obligations become due ; and
the fact that most dealers are willing to allow the pur-
chaser as much interest for the money from the date of
purchase to that of the maturity of the bill as the money
commands in the market, avoids the loss incident to ty-
ing up that amount of money.
"Exchange," while originally and technically limited to
the definition given in the opening of this chapter, at the
present time in commercial parlance includes bills of ex-
change, transfers by cable, and, in fact, the transmission of
demands of all kinds by which money or an order for its
payment is made payable at a place other than the place
of issuance of such demand.
The prevalent impression thac a particular country at
more or less regular periods settles in gold the balance
due in favor of some other particular creditor country is
unwarranted by the very principles which govern ex-
change as well as by all the facts deducible from the sta-
tistics of the money world. The reason why such settle-
ments between country and country are not so effected is
seldom thoughtfully considered. The fact that the debits
and credits of the entire commerce of the world must
equal each other, and that it is impossible that either can
be in excess of the other, is generally lost sight of. It is
axiomatic to say that debits and credits must agree. The
entire amount of exports and imports of the world's com-
merce must be the same, from the fact that one country
must of necessity export what another country imports.
PRINCIPLES OF FINANCE. 47
To maintain that the total amount of debits and credits
could vary, or that exports and imports could differ, would
be equivalent to saying that the debtor and creditor sides
of an accurately kept double-entry ledger would not be
the same.
In the settlement of the balance of trade between na-
tions that balance is rarely, if ever, settled between nation
and nation, but only the final balance on the gross ex-
ports and imports of the entire commerce of a country is
settled, and ultimately only by those countries which are
the final debtor countries paying such balance to those
countries which are the final creditor countries. The ex-
cess of our entire credits over our entire debits, taking
our country for the purpose of illustration, as a rule being
due from the three principal debtor nations of the world,
England, Germany, and France, must, in the absence of
some credit, equivalent to their own and assumed debit to
us, be remitted to us in gold. But, as a matter of fact,
this final credit to us, due from our excess of exports over
imports, is more than balanced by the large holdings of
interest-bearing American securities held by these coun-
tries, and which often more than offset our credit on ex-
ports over imports, and occasion, in addition, the expor-
tation of large amounts of gold from this country yearly,
to pay the balance which is finally in their favor. It is
not intended to assert that there may not be times when
one of these countries on the total of all transactions, in-
cluding holdings of American securities, is in this country's
debt, but to assert that, taking the three collectively, such
is not generally the case.
The shipment of bullion does not necessarily, nor even
generally, indicate the location of the balance of trade.
Because while the balance of trade may be largely in favor
of some young country, that balance may be, as explained
in the previous paragraph, more than offset by the pay-
ments of interest to countries commercially debtor and fi-
48 PRINCIPLES AND PRACJ^ICE OF FINANCE.
nancially creditor, which excess of sums due for return of
securities must be remitted in bullion. It may be more
truly said that the shipment of bullion is an indication of
the excess of the entire credits of all countries against
the entire credits of one particular country ; but even this
is not always true, because bullion is largely purchased
simply as a commodity, the same as wheat or cotton, the
purchase usually being made when the relative value of
bullion to other commodities is less than usual, and being
sold when that relative value is greater.
The assumption is that the value of gold never changes.
This assumption is not absolutely accurate, because while
the prices of other commodities adjust themselves to the
value of gold, instead of the price of gold adjusting it-
self to the value of other commodities ; yet it is perfectly
clear that when the relative value of numerous other
commodities is greater relatively to the value of gold than
at another given time, then the buying power of gold is
reduced, and when the relative value of other commodi-
ties is less, as compared with the buying power of gold,
then the value of gold is greater. The real value of gold
is adjusted by the enormously greater value of other com-
modities ; and when the value of other commodities to
the value of gold is greater, then gold which has really
depreciated will be purchased for export, because at
that time certain commodities will buy more gold than
when the relative value of these commodities to gold is
less.
Price. Price is the money measure of a commodity,
service, or thing that is, the amount of money for which
it will exchange. Value is the relation a thing bears to
all other things, while price is the relation a particular
commodity, service, or thing bears to money, and money
only. In other words, price is the value of a thing ex-
pressed in money. The same principles which govern
value also in a somewhat modified degree fix price.
PRINCIPLES OF FINANCE. 49
Before discussing the price of commodities and things,
it is necessary to make a few brief remarks with regard to
the price of labor, which is governed by much the same
factors that control the price of commodities, inasmuch
as the value of the bulk of labor is measured by its pro-
ductivity of commodities. There is, however, a class
engaged in the rendering of services of a professional and
personal character, whose price is fixed almost solely by
their reputation, skill, or ability, and the demand for their
services. The price of labor is fixed not only by supply
and demand, its productivity, and the interest charged
for capital, the wages received in a particular industry,
vocation, calling, or profession, but to a considerable
extent by the wages received in all. The effect of this is
to equalize the rewards of labor of a like character.
While the wage of labor is measured in time and
money, the real wage is the value received for the effort
expended, and at no time in the history of the world has
labor received such substantial rewards as it does at the
present day. The wages of workmen, the incomes of
business and professional men, are greater now than ever
before. The reason for this is not far to seek. The
forces of nature, through the application of machinery,
have become powerful auxiliaries to man, and much that
previously required the expenditure of manual force is
now accomplished by machinery. The result has been
to enormously increase the productivity of labor, and
thereby augment the fund out of which it is rewarded. As
this fund accumulates the laborer becomes more indepen-
dent, industry more profitable, and the demand for his
services, and the price, greater.
The statements in relation to price apply entirely to
wholesale prices, such as are found in current price-lists,
exchange quotations, etc., and have no application to the
prices of the retailer, which are governed by so many con-
ditions as to render the principles stated often inapplicable.
50 PRINCIPLES AND PRACTICE OF FINANCE.
The retail price of a particular article is often governed
largely by the reputation of the maker or producer, and
the ability of the purchaser to pay the price demanded,
rather than by well defined laws, hence the apparently
unreasonable variations in the retail prices of various
articles, such as clothing, hats, shoes, jewelry, etc.
Price presupposes, first, the possession by certain persons
of a surplus of some article, commodity, service, or thing,
beyond their needs, and which they desire to exchange ;
second, the existence of some generally accepted measure
of value, money ; without this exchangeable surplus, and
this measure of value, price is an impossibility.
Those products necessary to the support of life are of
the most certain and universally accepted value ; they are
the only things that man cannot do without, and in case
of necessity he sacrifices any other form of wealth to
procure food and clothing ; consequently gold, silver,
precious stones, works of art, and other commodities or
things on which a large amount of labor may be ex-
pended, and which form the principal means of preserving
the values of the surplus of agriculture and pastoral pro-
duction, depend largely for their value upon the existence
of a surplus of the necessities of life.
Until a people or country has reached a degree of pro-
gress in which they have accumulated a certain surplus of
food and clothing products, that is, necessaries of life,
there is but little use for preservative commodities, there-
fore among such peoples their relatively insignificant
value, value being dependent upon usefulness. As soon
as a substantial surplus has been accumulated, so soon do
preservative commodities possess an increased price ;
consequently in the older countries, where wealth and
values in the shape of improved real estate and many of
the comforts of life have been accumulated, rendering un-
necessary the expenditure of human energy for this part
of wealth, and allowing thereby a larger expenditure of
PRINCIPLES OF FINANCE. 51
energy for production, the surplus of food and clothing
products would yearly become greater than in the
younger countries, where a larger part of labor must be
expended for the procuring of shelter, furniture, etc.
To minimize this yearly increasing surplus of necessa-
ries in older countries, recourse is had to diversity of
industry a larger number of individuals are employed in
the production of works of art and the manufacture of
articles of personal adornment and the rendering of
various services for which there is no need, and no surplus
to pay for, in more primitive communities.
The progress of mankind means the accumulation not
only of a surplus which may be expended for his mental
and moral elevation, but also a decrease in the amount of
labor necessary to make provision for the purely bodily
and material wants, hence the price of what may be
termed necessities of life must decrease in price. As the
surplus of the necessities of life, which are practically all
of a perishable nature, increases, the necessity of means
for converting that surplus likewise increases, and prices
of the commodities or things best adapted for this purpose
are necessarily enhanced, while prices must necessarily
continue to decrease for those products the surplus of
which is yearly growing greater, as long as this dispropor-
tionate increase between the different classes of com-
modities continues in its present ratio. This continued
disproportion however seems improbable in view of the
well known economic law that both capital and labor will
naturally seek the more and leave the less remunerative
fields. This rush of capital and labor to very profitable
enterprises soon creates a surplus of the thing or service
which previously commanded a high price on account of
its limited supply, and by the withdrawal of capital and
labor from the hitherto unprofitable employments, the
volume of those products is reduced, and the demand
correspondingly increased. This system of economic
52 PRINCIPLES AND PRACTICE OF FINANCE.
adjustment is going on constantly, and tends to the pres-
ervation of fair relative values and prices.
The following factors control the price of articles and
commodities : first, cost of production, which includes
labor, capital, and interest ; second, transportation and
distribution ; third, supply and demand ; fourth, compe-
tition and combination ; fifth, artificial restraints of
trade.
1. Cost of Production. The cost of production is
measured, first, by the amount of capital necessarily em-
ployed in the production of a given product. It makes
no difference whether the capital be owned by the pro-
ducer or is borrowed. If possessed, its usefulness is
measured by the rate of interest it could produce other-
wise invested. If borrowed, its cost is measured by the
charge made for its use. The wage of labor, taxes,
insurance, and compensation of employer are likewise
elements of cost.
The more perfect and general becomes the use of
machinery, the more certain and speedy the means of
transportation in other words, the greater becomes the
supply, or the less effort required to secure it, the lower
prices must go. The whole aim and trend of civiliza-
tion for the last two hundred years has been in this
direction.
2. Transportation or Procurability. Price is further
governed or modified by means of transportation and dis-
tribution, which practically tend to the procurability of
the article or commodity, and no matter how limited the
supply or great the demand, if a particular commodity or
thing is produced at a place in excess of the local demand
for it, and no means of transportation are provided for its
carriage to points of demand where the supply is inade-
quate, the price of sale is fixed at the place in which it
can be sold. There can be no question that corn and
wheat, prior to the opening of the Erie Canal or to the
PRINCIPLES OF FINANCE. 53
establishment of our interoceanic lines of railway, pos-
sessed all the food values they now do, but in the absence
of means of transportation, being produced greatly in ex-
cess of the needs of their local consumers, the surplus was
a practical waste, owing to the prohibitory transportation
charges incident to the carriage of this surplus by the
primitive means afforded by wagons and pack-horses.
The cost of transportation must necessarily be deducted
from the price. Thus wheat sells at Omaha less its car-
rying charges to Chicago, in Chicago less its carrying
charges to New York, in New York less its carrying
charges to Liverpool. This statement is based on the
assumption that there is a surplus of wheat in Omaha
over Chicago, a surplus in Chicago over New York, and
a surplus in New York over Liverpool. If through ex-
cessive purchases Liverpool should acquire this surplus,
and some of the other cities a deficiency, then the condi-
tions would be altered and the price in the city suffering
from the deficiency would be plus that of the city enjoying
a surplus. In other words, the price of wheat in the place
where there is an insufficient supply is the price in the city
where there is a surplus, plus the carrying charges between
the two places.
The building of railways, the opening of canals, the
establishment of lines of ocean steamers, putting the
whole world in communication, and opening the markets
of the old world to the produce of the new, and the mar-
kets of the new to the manufactures of the old, have all
tended to increase the supply where needed of both food
and clothing products, and to reduce their price in the
markets of the world.
Distribution is a necessary part of the cost of transporta-
tion, in fact distribution itself is one element of trans-
portation ; consequently the charges of factors, merchants,
middlemen, brokers, insurance companies, and others, all
of whom render services incident to the transportation or
54 PRINCIPLES AND PRACTICE OF FINANCE.
distribution of commodities, become an inherent part of
their cost and an element in fixing the ultimate market
price.
3. Supply and Demand. These terms are so intimately
connected as to be practically inseparable. By supply is
meant only the available supply, and not the total mass
of a given product, a large part of which under certain
conditions may be unavailable ; thus, if some country
should have a surplus of wheat, and that surplus could
not be brought into the markets of the world, it would
not be available and would not affect the market price of
the available supply. By demand is meant the effective
demand ; that is, the demand of persons in a position to
give an exchangeable value for the value they desire to
possess.
Supply is the measure of quantity ; demand is the
measure of effective desire. Generally speaking, where
the supply is large the relative demand is reduced and
the price of the product is consequently lowered, but even
though the supply should be larger than formerly, should
the demand increase in like ratio the price is maintained ;
again, while ordinarily a decrease in supply would mean
an increase in price, this is only true where there is a cor-
responding increase in demand. It may, and often does,
happen that a decreased supply going hand in hand with
a decreased demand means a stationary or even falling
price. This is especially true of articles dependent for
their sale upon the taste or caprice of the purchasing
public, such as textile fabrics of particular patterns. The
desire to possess them having decreased, even though their
supply may have diminished in greater ratio, they become
practically unsalable or command but little price.
Low prices for food and clothing products show beyond
dispute that they are plentiful, and that it is desired to
preserve the value of their surplus production. Plenty is
surely cause for congratulation, perhaps not to the pro-
PRINCIPLES OF FINANCE. 55
ducer of these commodities, who may be compelled to
take a low price for them, but if he will insist upon pro-
ducing what the world already has a full supply of, he has
only himself to blame for a waste of effort.
High prices for food and clothing are an infallible indica-
tion of scarcity, and show that there is but little surplus
to be converted into more permanent forms of value, and
while this condition may be cause for rejoicing to the
food and clothing producers, it is cause for apprehension
and discomfort to all others.
Where the price of a product is insufficient to pay the
producer a fair rate of interest on the capital invested and
a reasonable wage for his labor, it is evident that there is
either little demand for his product, or, what to him is
equally bad, an excessive supply ; because the rewards of
labor, whether they be to the employer or employee, tend
practically to the same level in all industries, of course
measured by the productivity, skill, dexterity, and rarity
of the labor employed.
4. Competition and Combination. As civilization ad-
vances and population becomes more dense, competition
increases owing to the larger number of producers. This
increased production necessarily decreases the price of the
product, and owing to the very large number of small
proprietors engaged in certain classes of industry, prin-
cipally food and clothing products, renders combination
between such producers limiting production practically
impossible. In many products competition has become
so fierce as to leave but little profit to either the producer
or the distributing agent.
Combination, which is the antithesis of competition,
when applied to articles and commodities is known as
trusts ; when designed to limit the supply and to increase
the wages of labor, it takes the form of trades unions
and other labor organizations.
When applied to commodities, combination or monopoly
56 PRINCIPLES AND PRACTICE OF FINANCE.
is generally practicable only in relation to articles requir-
ing for their production a large amount of capital in the
hands of a comparatively few corporations or individuals,
who may readily combine to limit the output of its differ-
ent members ; hence these trusts, monopolies, or combina-
tions are generally confined to manufactured articles, and
in this country are rendered doubly effective by the large
import duties imposed on many manufactured articles,
thereby giving a practical monopoly of the domestic
market to the home manufacturers ; but in the absence of
such import duties a combination to be effective would
have to embrace all the manufacturers of the world pro-
ducing that article.
Competition necessarily reduces prices ; combination
is designed to increase them. The law-makers of the
Federal Government and of the States have considered
combinations so inimical to the general welfare as to pass
most stringent laws against agreements or contracts in
restraint of trade, and to refuse to enforce them.
5. Artificial Restraints of Trade, by which is meant
interference either by governments or individuals with the
natural laws and conduct of trade, necessarily affect the
price of the article upon which that interference is exer-
cised. Governmental restraints, whether they consist of
the licenses which a city requires the vendors of various
kinds of merchandise to purchase, the internal revenue
taxes levied by the Federal Government, or the import
duties imposed by the same power, add to the price of
the article on which they are imposed, and this additional
price must be paid by each subsequent purchaser. In the
case of imported commodities on which there is an import
duty, the import price is the price of the country of ex-
port plus the duty. In some classes of manufactured
articles where the profit is great, it is sometimes the cus-
tom of merchants to make one price to their home buyers
and another to their foreign purchasers, in order to reach
PRINCIPLES OF FINANCE. 57
a market from which the duty would exclude their goods.
Obviously, however, this reduced price for export goods
can enable goods to reach the desired market only where
the profit is large enough to admit of great reduction
from the home price and where the duty is comparatively
small. In the case of such staple commodities as food
products, and the great bulk of clothing products, espe-
cially the cheaper grades, if there is any difference between
the home and export price it is so slight as to amount to
practically nothing, and the cost to the importer is nearly
always the price prevailing in the country of export plus
import duties, transportation, and insurance. Sometimes
foreign merchants in order to dispose of their surplus or
old stock, will sell to foreign buyers at a much lower price
than to domestic, sooner than reduce the selling price of
their products in the home market.
Individual restraints of trade usually consist of the
purchasing by one or a number of men, of a quantity of
a given product largely in excess of their legitimate wants
or expectations of exchange. In common parlance this
is known as a " corner/' One or more men purchase the
available supply of a particular commodity and thereby
are able to demand whatever price they choose from
buyers. While this may effect a temporary rise in the
price of the product " cornered," it is impossible that it
can permanently affect either its value or its price, be-
cause its only worth to the possessors is an exchangeable
one, they possessing an amount largely in excess of their
own needs, and of necessity being compelled to soon dis-
pose of their holdings.
Effect of Standard of Value on Price. By many it is
contended that what they term the demonetization of
silver and the consequent making of gold the single
standard of value has led to a decrease in the price of
commodities and a consequent increase in the price of
gold.
58 PRINCIPLES AND PRACTICE OF FINANCE.
In order to sustain this contention it is necessary to
show that gold has not been practically the sole universal
standard of value for the last hundred years, and that the
alleged demonetization of silver had resulted not only in
the restriction of its legal-tender quality, but had likewise
deprived it of its value as a commodity, and had been the
sole cause of its relative decrease in value. This will
probably not be attempted. It would be further neces-
sary to prove that the available ratio of gold to the com-
merce of the world had not been maintained, or that the
demand for gold as a circulating medium had increased
out of proportion to its production, because as a standard
it simply bears an abstract relation to other commodities.
It could only as a measure of value itself increase in value
and the things measured by it decrease as it became the
preservative of value, not the measure of it. Again must
be considered the fact that even if the proportion of gold
to other commodities has not been maintained, this fact
has been more than offset by the various devices brought
into operation by governments, bankers, and financiers,
by means of which the representatives of gold in the
shape of paper money, credits, bills of exchange, etc.,
have been greatly augmented and the use of the metal
itself as an actual medium of exchange has been mini-
mized. It would be further necessary to show that other
preservative values had decreased in amount and that a
greater burden and therefore a larger demand for gold
as a preservative commodity, which is its most restricted
use, had ensued. This in the face of the obvious accumu-
lation of wealth in other preservative forms it is impossi-
ble to prove. We may therefore conclude that whether
there be one or more standards of value (it is in this work
contended that there can be but one standard of value)
the relative value of commodities to each other is not
thereby changed.
In this relation it should be remembered that the tend-
PRINCIPLES OF FINANCE. 59
ency of finance during the last century at least has been
toward the restricted circulation of metals as the media of
exchange, and in the direction of the storing of those
metals and the issuing against them of currency or credits
in excess of the bullion value of the metals, and the secur-
ing of the deficiency in amount between the market value
of the metal and the face value of the currency by the de-
posit of other credits, principally government, state, and
municipal obligations. In other words, these last-named
obligations have come to the assistance of the metals as
a basis for the media of exchange, and have tended to min-
imize the actual use of metals, whose money use in most
civilized countries is now principally as one of the bases
of currency.
While gold, in common with other preservative com-
modities, has increased in relative value to food and
clothing products, as the surplus of these products became
yearly greater, its increase has not been so great as that
of other preservative values. The price of government,
state, municipal, corporate, and individual credits has in-
creased in a much greater ratio, bonds bearing a rate of
interest which enabled their makers to dispose of them
at par fifty years ago would now sell at over 200. Capital
generally is so plentiful that nearly all states and countries
have reduced the legal rate of interest, and have been en-
abled repeatedly to fund their interest-bearing securities
in others bearing a lower rate. This increase is not con-
fined to securities and credits, but pertains to practically
every commodity or article by which value can be pre-
served. The obvious reason for this enhanced value of
preservative commodities, credits, and securities is the
enormously increased supply of the necessities of life,
owing largely to the rapid development of new areas and
the greatly reduced cost of production.
PART II.
PRACTICE OF FINANCE.
r
CHAPTER I.
Money and Currency of the United States The New York Sub-Treasury.
Practice. In the succeeding articles the application of
the principles previously described, it is assumed, will be
readily determined by the reader, without the writer
pointing out the particular principles involved in each
kind of business discussed.
Money of the United States. The money of the
United States consists of gold and silver coin. Nickel
and copper are used for the minor subsidiary coin.
Gold, the coinage of which is unlimited, is legal tender
for a period of twenty years from the date of coinage to
any amount, when not reduced in weight more than one
half of one per cent.
The coins now minted are the quarter eagles ($2.50),
64!- grains; the half eagle ($5.00), 129 grains; the eagle
($io),258 grains ; and the double eagle ($20), 5 16 grains, all
T 9 AV tns fi ne ' or nine-tenths pure gold and one-tenth
alloy.
Silver. The coinage of this metal is now practically
confined to minor coins, and the purchase of silver bullion
since the repeal in 1893 of the purchasing clause of the
Sherman Act has ceased.
60
MONEY OF THE UNITED STATES. 6 1
Silver in dollar pieces of full weight is legal tender for all
purposes and to any amount in the absence of a contract
to the contrary. The smaller silver coins are only legal
tender to the amount of ten dollars.
Coins of the following nominal value, ^fffyths fine, are
now outstanding: Dollar, value $1.00, weight 4I2J-
grains; half dollar, $0.50, weight 192-^ grains; quarter,
$0.25, weight 96 T 4 Q 5 Tr grains ; and dime, $0.10, weight 38-
T 5 o 8 o grains.
At various times other silver coins have been issued ;
thus the Trade Dollar, weighing 420 grains, and by impli-
cation a legal tender to the amount of $5.00, coined under
the Act of 1873, circulated for about five years, when
its coinage was discontinued, and provision made for
its redemption at its face value, and for recoinage;
the twenty-cent piece, coined from 1873 to 1878 ; the Co-
lumbian half-dollar to the amount of $2,500,000, and the
Columbian quarter-dollar to the amount of $10,000, is-
sued in 1892. Three-cent pieces and a half-dime were
also coined.
It will be observed that while about $423,000,000 silver
dollars have been coined, that less than $54,000,000 were
in circulation and over $369,000,000 on deposit in the
United States Treasury on April I, 1895. The reason
for this is that the silver coins being too bulky and heavy
for extensive use in large amounts, it became necessary
for the government to receive them on deposit and to
issue in their place silver certificates.
Nickel and Copper. These metals are used entirely for
minor coins which are only legal tender to the amount of
25 cents and which are redeemable by the United States
in lawful money in sums of not less than twenty dollars.
While at various times half-cents of copper, nickel cents,
bronze cents, and two- and three-cent pieces of nickel have
been coined ; at present only the copper cent, weight 48
grains, and the five-cent piece nickel, weight 77 T W grains,
62 PRINCIPLES AND PRACTICE OF FINANCE.
are coined. Some of the other coins, however, are still
occasionally seen.
Only the one-cent piece (copper) and five-cent piece
(nickel) are now coined.
Currency of the United States. In addition to the
gold and silver which are legal tender as before stated, a
large part of the country's currency is also legal tender,
and that fact will be indicated in speaking of the particu-
lar notes.
As previously explained, the currency of the country,
excepting gold and silver certificates, is secured by the
government's credit and its metal reserve. Of course the
metal on deposit with the government against which cer-
tificates have been issued, is held exclusively for the re-
demption of those certificates and is not applicable to any
other purpose. The national bank notes are secured by
the pledge of the government strengthened by the lawful
money reserve required to be kept by the banks of issue
and by the United States bonds and the 5 % redemption
fund deposited by such banks with the Treasurer of the
United States to insure their redemption.
United States Notes or "Greenbacks" These notes consti-
tute the balance of the unredeemed forced paper currency
issued during the late Civil War, of which a fixed amount,
$346,681,006, is outstanding. They are legal tender for
all debts, public and private, except duties on imports
and interest on the public debt, but being redeemable
upon demand in coin, the latter limitation of their legal-
tender quality is of little effect ; in fact, by a regulation
of the Secretary of the Treasury they are received in
payment of customs and other duties. These notes when
received by the government may be re-issued and of course
constitute a constant claim upon the government's lawful
money.
United States Treasury Notes. Under the Act of 1890,
commonly known as the Sherman bill, these notes were
MONEY OF THE UNITED STATES. 63
issued in payment of purchases of silver, and are legal
tender for all debts, public and private, except where
otherwise stipulated in the contract between the parties.
They are redeemable in gold or silver coin at the discre-
tion of the Secretary of the Treasury. In order to main-
tain a nominal parity of silver and gold, it has been found
necessary during the last few years to redeem these notes
when demanded by the holder in gold. There are now
outstanding $155,000,000 of United States Treasury notes.
Gold Certificates are issued in denominations of not less
than $20 by the Secretary of the Treasury against de-
posits of gold coin, which coin shall be retained in the
Treasury exclusively for their redemption upon demand.
Gold certificates are receivable for customs, taxes, and all
public dues, although not legal tender.
Silver Certificates, in $i, $2, $5, and $10, and higher de-
nominations, are issued against standard silver dollars
deposited in the Treasury. They are not legal tender,
but are receivable for public dues. As explained in the
remarks on silver, these certificates circulate largely in
place of the coin and form a large proportion of our
currency.
Currency Certificates (not legal tender) are issued by
the United States in denominations of $5000 and up-
wards upon deposits of currency with the United States
Treasury.
National Bank Notes are issued by the Comptroller of
the Currency to national banks upon deposit by them of
United States bonds with the Treasurer of the United
States. The conditions of the issue of these notes and the
security by which they are protected are so fully stated
in the article on National Banks as to make any repetition
of it here superfluous.
The following table contains a statement of the kinds
and amounts of money of the United States and the
banks of issue on April I, 1895 :
6 4
PRINCIPLES AND PRACTICE OF FINANCE.
Kinds.
Total.
In Treasury.
In Circulation.
Gold . . .
$^67 ^Q2 4l6
$88 098,517
$470 403 800
Silver dollars *
422,927,039
360,009,182
53,917,857
Subsidiary silver, cop-
per, and nickel. . . .
76,450,557
346 681 016
i6,577,5H
80 74^ 2^7
59,873,046
2^6 Q^ 7^Q
U. S. Treasury notes
National bank notes.
150,330,089
207,541,211
28,872,489
4,449,893
I2I,457,6OO
203,091,318
$1,771,522,328
$596,752,849
$1,174,769,479
Besides the above, there was gold bullion to the amount
f SS^S^/jQ/Q* an d silver bullion of the nominal value of
$124,673,187 in the Treasury on April i, 1895.
Gold certificates, silver certificates, and currency certifi-
cates are not included in the above table, for the obvious
reason that they are only issued against metal or currency
as previously explained, and of course constitute no addi-
tion to the lawful money supply.
The amount of silver and gold certificates in circulation,
however, while it constitutes a demand claim upon the
government's metal holdings against which these certifi-
cates are issued, increases the circulating medium.
NEW YORK SUB-TREASURY.
The Sub-Treasury, situated at the corner of Wall and
Nassau Streets, which bound it on the south and west,
while Pine Street is on the north and the Assay Office a
part of the Sub-Treasury, is on the east, occupies the site
of the old City Hall of New York, which, at a later period,
was known as " Federal Hall." Here Washington was in-
augurated as the first President of the United States of
America, and took the oath of office on the spot now
1 The currency is augmented by the issue of $331,121,504 of silver cer-
tificates of various denominations issued against silver dollars. $7,374,748
of these certificates were in the Treasury, and $323,746,756 in circulation
on April i, 1895.
NEW YORK: SUB-TREASURY. 65
marked by the imposing bronze statue, of which J. Q. A.
Ward is the sculptor.
This building is conspicuous among the loftier buildings
surrounding it, particularly for its pure architecture and
its adaptability for its present use. Its solid and substan-
tial form, its doors, guarded with steel gratings, its mas-
sive safes, immense vaults, and its uniformed guards
and attendant policemen, as well as the fire-proof charac-
ter of the building, suggest it as a proper place for the
.safe storing of the millions of gold and silver which are
.always within its walls. From the time of its completion
in 1842, down to 1862, it was used as a Custom House,
since which time it has been devoted to its present use.
In the basement are the vaults where the gold and sil-
ver, after being received through the Pine Street entrance,
are stored. Besides the vaults in the basement, there are
large safes on the main floor, in which a lesser amount of
silver and gold is kept.
The main entrance to the Sub-Treasury on Wall Street
leads to a large and well lighted rotunda, surmounted by
a beautiful dome. The office of the Assistant U. S.
Treasurer is on the left of the main entrance. The
coin division is in the Pine Street end of the building.
On one side of the hall is the division where the larger
denominations of coin are received and paid out, while
across the hall is the minor-coin division. The upper
floors are devoted to the accounting offices and files.
This Sub-Treasury is only second in importance to the
United States Treasury in Washington in the amount of
business transacted, which exceeds the aggregate of all
the other sub-treasuries in the country, two thirds of the
government revenues and disbursements being here re-
ceived and disbursed ; due principally to the fact that it
only costs about $1.01 per million to handle money in
this office, whereas the cost of handling in the other sub-
treasuries averages $2.47 a million.
66 PRINCIPLES AND PRACTICE OF FINANCE.
The average daily balance of cash (by which is meant
Treasury certificates, gold certificates, silver certificates,
National Bank Notes, greenbacks, gold and silver bull-
ion, gold and silver coin, subsidiary coins of copper and
nickel) is very difficult to state with any exactness, inas-
much as it varies daily not in thousands of dollars or
hundreds of thousands or even millions, but often in tens of
millions. Within the last year ending December, 1894,
the average daily balance has been about $110,000,000.
The receipts consist mainly of duties received at the
Custom House, which are daily paid in, internal-revenue
taxes, deposits of postmasters, remittances from banks
acting as national depositories, and deposits of banks or
individuals throughout the country of bullion. Here gold
certificates payable in coin or in bullion, all forms of paper
money, save silver certificates, are redeemed in coin upon
presentation.
Silver and gold coin and bullion in large amounts are
deposited by banks and private individuals on receipt.
These deposits form no part of the real available assets
of the Sub-Treasury, which, for the time being, is simply
used as a storehouse for their safekeeping.
The principal payments and disbursements are those
made to the disbursing officers of the army and navy,
against which payments deposits have been previously
made from the main Treasury in Washington. Other dis-
bursements are the regular Treasury payments on appro-
priations for public buildings, improvements, the construc-
tion of public works, and the payment of pensions, about
$90,000,000 being paid out annually by this Sub-Treasury
for this account alone. In addition to these disbursements
the interest charges on government bonds falling due are
here paid to the holders.
Several times when its financial condition warranted, the
government has, in order to relieve the stringency of the
money market, anticipated the payment of its bonds, the
NEW YORK SUB-TREASURY. f
necessary disbursements for which were made principally
through this Sub-Treasury.
The Sub-Treasury is a member by courtesy of " The
New York Clearing-House Association," as it has daily
to pay large balances to the different banks, and it
thereby saves itself and them the trouble of making
payments to each, instead paying the amount due all
to the Clearing House, which distributes it.
The Assay Office, immediately to the right and adjoin-
ing the Sub-Treasury, of which it forms a necessary part,
is interesting principally as the storehouse of the Sub-
Treasury and from the fact that millions of coin and
bullion are here stored. A comparatively small part of
the gold and silver here in store is in the shape of coin,
that being generally kept at the Sub-Treasury. But here
may be seen bricks, as they are termed, of gold bullion,
little larger than a watch charm, square in shape, and
worth about $130, according to the fineness of the metal,
to larger bricks worth $6000.
Bullion is received in this office through the Sub-Treas-
ury from all parts of the republic, and requisitions are
made by the various mints of the country on it for such
bullion as they need for coinage.
CHAPTER II.
Bapics National Bank Act.
THE functioiaryof a 'bank Is to issue, receive on de-
j f ->/
posit, and loan money, to economize its use, and to re-
ceive, extend, and facilitate the interchange of credits ;
and to banks is largely due the extension and the develop-
ment of the system of domestic and foreign exchange,
which is an extension of the system of banking itself.
To appreciate fully the extent of the exchanges effected
by banks, we must bear in mind that while the active cur-
rency of our country is about $1,600,000,000 the total
annual clearances of the Clearing Houses of the country
are $62,000,000,000.
These associations are formed by banks for the pur-
pose of avoiding actual payment, in money, of their obli-
gations to each other (see Clearing House). Nor does
this amount include transfers between depositors of the
same banks effected on the books of those banks.
Banks are divided into six different kinds, the first and
most important being those organized under the National
Banking Act of 1863, and the amendments which have
from time to time been made thereto, and called National
Banks. Trust Companies which are organized under the
laws of the various States in which they are located, State
banks, savings banks, National Gold Banks, and private
banks.
The present national banking system came into exist-
ence under the Act of 1863 ; this Act, however, was re-
BANKS. 69
pealed and superseded by that of 1864, previous to which
the banks of issue were organized under the laws of the
different States in which they were located. These laws
were not uniform, some being far more stringent than
others. The banking laws of some States, however, were
almost models of their kind, and provided ample security
for the protection of the holders of the bank notes as well
as of the depositors.
The banking laws of several of the States furnish excel-
lent object-lessons, in the difference between sound princi-
ples and their application to finance, and dangerous ex-
periments in the attempt to create money out of nothing,
or, at most, out of values insufficient to secure the face
value of the paper money issued against it, and which
value could not be readily converted into good money.
In considering the question of banking laws, the natural
and political conditions of a country must always be taken
into consideration, and it is not fair to assume, because
at a certain stage of a country's development a law
has been unsuccessful, at a later period, when the con-
ditions have been entirely changed, the result would
be the same. Unquestionably, if the present national
banking system had been tried in the earlier days of our
republic, or, in fact, at any period sooner than it was, it
must have met with nearly the same result as attended
State legislation, or at best have been but little more suc-
cessful than the average. It would, undoubtedly, how-
ever, have secured uniformity in the price of circulating
notes that is, the notes of every bank would be of the
same value as that of every other, which is something un-
attainable under State laws.
The National Bank Act provides for the incorporation
of National Banks, and prescribes that such banks shall
include as a part of their title the word " National," and
prohibits all other banks from using the word " National "
as a part of their name. Under this law are also organized
70 PRINCIPLES AND PRACTICE OF FINANCE.
and operated, principally on the Pacific Coast, what are
termed " National Gold Banks," In the District of Co-
lumbia there is a National Savings Bank, authorized by
this act. State banks are organized under the laws of the
States in which they are located. Trust companies are
also formed under the State laws.
Savings banks are organized under the laws of the vari-
ous States in which they are located, and are subject to
many restrictions in regard to the character of their in-
vestments and of the collateral on which they may loan,
also the proportion of currency to deposits which must be
kept on hand, and other matters which will be more fully
explained under " Savings Banks."
Private banks and bankers, i.e., one or more individuals
engaged in the business of banking but not incorporated
as a company, are subject to State supervision, the same
as State banks, only when they issue circulating notes,
which they are permitted to do under the laws of New
York, on the same conditions imposed upon State banks,
but which they have found unprofitable on account of
the Federal tax of ten per cent, on the issue of all but
national banks.
In order to convey a clear idea of the powers of, and
the differences between the several kinds of banks, it has
been found necessary to give a synopsis of the laws under
which they exist, and to which they are amenable.
NATIONAL BANKS.
The National Banking Act of the United States was
first passed in the year 1863, repealed and a new act sub-
stituted in 1864, which has been amended from time to
time since. Below is the act as it at present stands.
To thoroughly establish the national banking system, it
became necessary for the Federal Government to impose
a tax of ten per cent, upon the circulating notes of all
other than national banks. By many, this tax is consid-
NATIONAL BANKS. fl
ered if not unconstitutional, an abuse of the Federal
taxing power, but had the desired effect of making the
" National " the prevailing banking system of the country.
Condensation National Bank Act. The first provision
of the national banking act as now in force provides for
the establishment of the Bureau of the Comptroller of the
Currency, to whom all matters relating to national banks
are referred, with power to grant certificates to such banks
to commence business, on being convinced that the condi-
tions of the act are complied with, or in his discretion to
withhold such certificates ; and through bank examiners
to make examinations whenever he may deem it necessary.
Organization and Powers. The first provision of the
law proper is in regard to the organization and powers of
national banks, and prescribes that not less than five
natural persons and by natural persons is meant individ-
uals and not corporations, executors, administrators, etc.
may associate themselves together to organize a
national bank.
They must make an organization certificate specifying
the object of the formation of such association, and this
certificate, which must be properly signed and forwarded
to the Comptroller of the Currency, shall state : first, the
name of such association ; second, the town or city and
State where its operations are to be conducted ; the
amount of capital stock ; the number of shares into
which it is to be divided ; the names and places of resi-
dence of the shareholders, and the number of shares, held
by each of them. It must be acknowledged before a judge
of some court of record or a notary public, whose seal
must be attached thereto.
From the date of filing the articles of association, after
approval of their application by the Comptroller of the
Currency, the associates become a body corporate, and as
such are vested with the power to use a corporate seal and
to have for twenty years the use and enjoyment of the
72 PRINCIPLES AND PRACTICE OF FINANCE.
privileges of this act, subject to its restrictions, limitations,
and obligations, although this incorporation may be
sooner dissolved, according to the provisions of its articles
of association, by the vote, in value, of two thirds of the
shareholders. The franchise may be forfeited through
violation of the law.
It shall have power to make contracts.
Such association may sue or be sued in the same
manner as natural persons; can elect or appoint direc-
tors, and such directors may appoint or elect a president,
vice-president, cashier, and other officers necessary to
carry on its business, and may dismiss these and appoint
others to fill their places.
Its Board of Directors may adopt by-laws not incon-
sistent with law. Through its Board of Directors and
officers it may exercise such powers as shall be necessary
to carry on the business of banking, in its various forms.
May issue circulating notes as is further on fully stated,
and may exercise such incidental powers as shall be
necessary to carry on the business of banking: by dis-
counting and negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt ; by receiving de-
posits ; by buying and selling exchange, coin, and bul-
lion ; by loaning money on personal security ; and by
obtaining, issuing, and circulating notes according to the
, provisions of this title.
May purchase, hold, and convey real estate, but only as
much as shall be necessary for its immediate accommodation
in the transaction of its business, and such as shall be
mortgaged or conveyed to it in good faith as security for
or satisfaction of debts previously contracted, and it may
hold for the space of five years the possession of real
estate under mortgage or the title and possession of such
real estate as may be purchased to secure a previously in-
curred debt, at the expiration of which time such real
estate must be sold.
NATIONAL BANKS. 73
No national bank may be organized having a capital of
less than $50,000, in a town whose population is less than
six thousand inhabitants ; $100,000 in a city of less than
fifty thousand ; or $200,000 in a city of more than fifty
thousand inhabitants.
Its capital stock shall be divided into shares of one hun-
dred dollars each, and be deemed personal property,
transferable on its books as prescribed in the by-laws or
articles of association ; a person becoming a shareholder
by transfer having the rights and incurring the obliga-
tions of the original shareholder.
At least fifty per cent, of the capital stock of such asso-
ciation shall be paid in before it is authorized to commence
business, and the remainder to be paid in equal monthly
instalments of ten per cent. each.
The first payment of fifty per cent, and each subsequent
payment must be certified by the President or Cashier of
such association to the Comptroller of the Currency.
Upon the failure of a shareholder to pay any instalment
on the stock subscribed to by him, such association may
sell the stock of such delinquent shareholder at public
auction, after three weeks' public notice thereof published
in a newspaper of general circulation in the city or county
where the association is located, or in the city or county
nearest the location of such association, to the person
paying the highest price therefor, which price shall not
be less than the amount then due, together with the ex-
penses of advertising and sale. In case of failure to sell,
the amount previously paid by such shareholder shall be
forfeited to the association, and the stock shall again,
within six months after due notice as above provided, be
offered for sale, when, if not then sold, it may be can-
celled.
Upon the certificate of payment of the fifty per cent,
of the capital stock being sent to the Comptroller, he may
make such examination as he thinks necessary to deter-
74 PRINCIPLES AND PRACTICE OF FINANCE.
mine whether such association is entitled to commence
business, and if such examination proves it is, he must
then issue such certificate ; but if such examination proves
unsatisfactory, he may withold the same. Such associa-
tion shall cause the certificate so issued by the Comptroller
to be published, in the manner before stated, for at least
sixty days.
Before any bank is permitted to begin business, how-
ever, it is required to transfer and deliver to the Treasurer
of the United States, United States registered interest-
bearing bonds, to an amount of not less than thirty thou-
sand dollars and not less than one third of the capital
stock of such bank, except in the case of banks having a
capital of one hundred and fifty thousand dollars or less,
which shall be only required to transfer United States
bonds to the extent of one fourth of their capital. Such
bonds shall be received by the Treasurer on deposit, and
shall be kept safely in his office until otherwise disposed
of under the provisions of this act.
All transfers of bonds made by any bank to the Treas-
urer under this act are made in trust for the association,
and a memorandum to that effect should be written or
printed on each bond and signed by the Cashier or some
other officer of the bank, for which bonds the Comptroller
or a clerk will issue a receipt, stating that the bond is
held in trust for the bank and as security for the redemp-
tion and payment of any circulating notes that have been
or may be delivered to such bank. No assignment or
transfer of any such bond by the Treasurer shall be
deemed valid unless countersigned by the Comptroller,
who shall keep in his office a book in which shall be en-
tered, immediately upon his counter-signing it, every trans-
fer or assignment by the Treasurer of any bonds belong-
ing to a national bank, which entry shall state the name
of the bank from whose account the transfer is made, the
name of the party to whom made, and the par value of
NATIONAL BANKS. 75
the bonds transferred ; notice of which transfer shall be
immediately given to the bank by the Comptroller.
The Comptroller is given access to the books of the
Treasurer of the United States, for the purpose of ascer-
taining the correctness of any such transfer or assignment,
and also to the bonds to ascertain their amount and con-
dition. Like access is given the Treasurer to the books
of the Comptroller for the same purpose.
Each bank is required at least once a year, through
some officer or representative, to compare the bonds
pledged by it, with the books of the Comptroller, and if
found correct to execute to the Treasurer a certificate
setting forth the different kinds and the amounts thereof,
and that the same are in the possession and custody of
the Treasurer, a duplicate of which, signed by the Treas-
urer, shall be retained by the bank.
The bonds transferred to and deposited with the
Treasurer of the United States by any bank, for the
security of its circulating notes, shall be held exclusively
for that purpose, until such notes are redeemed. The
Comptroller of the Currency shall give to any such bank
powers of attorney to receive and appropriate to its own
use the interest on the bonds which it has so transferred
to the Treasurer ; but such powers shall become inopera-
tive whenever such association fails to redeem its circulat-
ing notes. Whenever the market or cash value of any
bonds thus deposited with the Treasurer is reduced below
the amount of the circulation issued for the same, the
Comptroller may demand and receive the amount of such
depreciation in other United States bonds at cash value,
or in money, from the association, to be deposited with
the Treasurer as long as such depreciation continues.
And the Comptroller, upon the terms prescribed by the
Secretary of the Treasury, may permit an exchange to be
made of any of the bonds deposited with the Treasurer
by any association for other bonds of the United States
76 PRINCIPLES AND PRACTICE OF FINANCE.
authorized to be received as security for circulating notes,
if he is of opinion that such an exchange can be made
without prejudice to the United States ; and he may
direct the return of any bonds to the bank which trans-
ferred the same, in sums of not less than one thousand
dollars, upon the surrender to him and the cancellation of
a proportionate amount of such circulating notes.
The association making a deposit of bonds as herein
provided shall be entitled to receive from the Comptroller
of the Currency circulating notes of different denomina-
tions, in blank, registered and countersigned as provided
by law, equal in amount to ninety per centum of the cur-
rent market value, not exceeding par, of the United States
bonds so transferred and delivered.
" In order to furnish suitable notes for circulation, the Comp-
troller of the Currency shall, under the direction of the Secretary
of the Treasury, cause plates and dies to be engraved, in -the best
manner to guard against counterfeiting and fraudulent altera-
tions, and shall have printed therefrom, and numbered, such
quantity of circulating notes, in blank, of the denominations
of one dollar, two dollars, three dollars, five dollars, ten dol-
lars, twenty dollars, fifty dollars, one hundred dollars, five hun-
dred dollars, and one thousand dollars, as may be required to
supply the associations entitled to receive the same. Such
notes shall express upon their face that they are secured by
United States bonds, deposited with the Treasurer of the
United States, by the written or engraved signatures of the
Treasurer and Register, and by the imprint of the seal of the
Treasury ; and shall also express upon their face the promise
of the association receiving the same to pay on demand, at-
tested by the signatures of the president or vice-president and
cashier ; and shall bear such devices and such other state-
ments, and shall be in such form, as the Secretary of the
Treasury shall, by regulation, direct."
The expenses of the issuance of such notes shall be
paid from the taxes assessed on the circulation of the
banks to which they are issued.
NATIONAL BANKS. 77
The Comptroller of the Currency shall cause to be ex-
amined each year, the plates, dies, butt-pieces (bed-pieces),
and other material from which the national-bank circula-
tion is printed, and file in his office annually a correct list
of the same.
Such material as shall have been used in the printing
of the notes of associations which are in liquidation, or
have closed business, shall be destroyed under such regu-
lations as shall be prescribed by the Comptroller of the
Currency and approved by the Secretary of the Treasury.
The expenses of any such examination or destruction
shall be paid out of any appropriation made by Congress
for the special examination of national banks and bank-
note plates.
National banks can only issue notes furnished by the
Federal Government. Since specie payments have been
resumed no association has been furnished with notes of
a less denomination than five dollars.
It may increase or decrease its stock on a two-thirds
vote in value of its stockholders, and after notice, subject
to the following conditions : In the case of increasing its
stock, it must also increase its transfer of bonds to the
Treasurer of the United States, so that there may always
be in the hands of the Comptroller bonds to the amount
of twenty-five per cent, of the capital of such association.
In the case of a decrease of capital, it can, after providing
for the payment of its outstanding circulating notes, de-
crease its deposit of bonds with the Comptroller, but
never below twenty-five per cent, of its capital.
It may elect directors at its annual meeting, or in the
case of a failure then to elect, at some subsequent meet-
ing, of which due notice shall be given. Its affairs shall
be managed by not less than five directors, elected by the
shareholders, each director being required to be a bona-
fide owner of at least ten shares of unpledged stock.
Every director must, during his whole term of service,
be a citizen of the United States, and at least three fourths
78 PRINCIPLES AND PRACTICE OF FINANCE.
of the directors must at the time, and for at least a year
previous, have resided in the State, territory, or district,
in which the association is located.
Directors are required to take an oath as to their dili-
gent and honest administration of the affairs of the asso-
ciation, and transmit the same to the Comptroller of the
Currency, to be filed. The Directors may fill any vacancy
occurring in their Board until the next election.
" The shareholders of a national bank are held individually-
responsible, equally and ratably and not for one another, for all
contracts, debts, and engagements of such association to the
extent of the amount of their stock therein, at the par value
thereof, in addition to the amount invested in such shares ;
except that shareholders of any banking association now exist-
ing under State laws, having not less than five milllions of
dollars of capital actually paid in, and a surplus of twenty per
centum on hand, both to be determined by the Comptroller of
the Currency, shall be liable only to the amount invested in their
shares ; and such surplus of twenty per centum shall be kept
undiminished and be in addition to the surplus provided for in
this title ; and if at any time there is a deficiency of twenty
per centum in such surplus, such association shall not pay any
dividends to its shareholders until the deficiency is made
good ; and in case of such deficiency, the Comptroller may
compel the association to close its business and wind up its
affairs. . . ."
Executors, administrators, guardians, or trustees hold-
ing stock are not personally subject to any liabilities as
stockholders, but the estates which they represent are.
A national bank may, upon a further deposit of gov-
ernment bonds with the Secretary of the Treasury, be
designated, and act as a depository of public moneys and
as the financial agent of the government, and every asso-
ciation so designated as a receiver and depository of pub-
lic money shall take and receive at par all national
currency bills by whatever association 'issued, which have
NATIONAL BANKS. 79
been paid into the government for internal revenue or for
loans or stocks.
A State bank may reorganize under the provisions of
this Act and may retain and keep in operation its branches.
Associations may be organized under the National
Banking Act for the purpose of issuing notes payable in
gold upon the deposit of any United States bonds bear-
ing interest payable in gold, with the Treasurer of the
United States, but none of a smaller denomination than
$5, nor can they issue notes in excess of eighty per cent,
of the par value of the bonds so deposited.
" Gold Banks," as these are termed, are required to
keep on hand twenty-five per cent, of their outstanding
circulation in gold and silver coin of the United States,
and to receive, at par, in the payment of debts, the gold
notes of every other like association which, at the time of
such payment, is redeeming its circulating notes in gold
coin of the United States.
The words " lawful money " are construed to mean
" gold or silver " coin of the United States.
A fine of one hundred dollars is imposed for use of any
National Bank bill as a means of advertising, either by
writing or printing the name and business thereon, or by
sending out an advertisement in the shape of a copy of
any such bill. There is also a fine of fifty dollars for
defacing or mutilating these bills.
The cities in which national banks are located are di-
vided into three classes : first, ordinary ; second, reserve ;
and third, central reserve cities.
Ordinary cities comprise the great number of cities,
neither reserve nor central reserve, in which national
banks are required to maintain a reserve of fifteen per
cent, of the amount on deposit with them, three fifths of
which reserve may be deposited by them in reserve or
central reserve banks.
In reserve cities, which are divided into four groups, at
80 PRINCIPLES AND PRACTICE OF FINANCE.
this date (1895) comprising the following cities: Group
I, Boston, Albany, Brooklyn, Philadelphia, and Pittsburg.
Group 2, Baltimore, Washington, New Orleans, and
Louisville. Group 3, Cincinnati, Cleveland, Detroit, Mil-
waukee, Des Moines, and Minneapolis. Group 4, Kan-
sas City, St. Joseph, Lincoln, Omaha, and San Francisco.
National banks must keep on hand twenty-five per cent,
of the amount on deposit with them, one half of which
may consist of amounts on deposit to their credit in central
reserve banks.
Central reserve cities, consisting in 1895 of New York,
Chicago, and St. Louis. In these cities national banks
must maintain a reserve of twenty-five per cent, and may
act as the depositories of a portion of the reserve of ordi-
nary and reserve city banks. Any city of more than two
hundred thousand population may, upon written applica-
tion to and approval of the Comptroller, signed by three
fourths of the national banks, become a " Central Reserve
City." Upon like application, any city with a population
of fifty thousand or more may be added to the list of
reserve cities.
All national banks are required to deposit with the
Comptroller a fund equal to five per cent, of their circu-
lating notes, which fund shall be held exclusively for that
purpose, but may be considered as a part of their lawful
money reserve.
" Clearing-house certificates, representing specie and
lawful money specially deposited for the purpose of any
clearing-house association, shall also be deemed to be law-
ful money in the possession of any association belonging
to such clearing house."
When the reserve of any bank falls below the respective
percentages above given, such bank shall not increase its
liabilities by making new loans or discounts otherwise
than by discounting or purchasing bills of exchange
payable at sight, nor declare or pay any dividend on its
NATIONAL BANKS. 8 1
profits, until such reserve is made good. If within thirty
days after notice from the Comptroller to make such re-
serve good the same is not done, the Comptroller, with
the concurrence of the Secretary of the Treasury, may
appoint a receiver to wind up the affairs of such bank.
The reserve required to be kept by National Gold Banks
is not only a percentage on its deposits, as in the case of
national banks, but on its circulation as well.
Each national bank in any of the reserve cities shall,
with the approval of the Comptroller, select a national
bank in a central reserve city, at which it may redeem its
-circulating notes at par, and may keep one half of its
lawful money reserve in cash deposits in such central
reserve city, but this does not apply to National Gold
Banks.
Every national bank must receive and take at par, for
any debt or liability to it, the notes or bills of any
other national bank, except the notes of associations or-
ganized for the purpose of issuing notes payable in gold.
The rate of interest which may be charged is the legal
rate prevailing in the State where such bank is located,
or the same as that which State banks of issue are permit-
ted by State law to charge.
Where no rate is fixed, seven per centum ; but the
premium on a bill of exchange payable at some other
place, is not considered interest.
The penalty for usury is the recovery of twice the
amount of interest received, by an action commenced
within two years from the time of the transaction.
The Directors may, semi-annually, declare a dividend of
so much of the net profits as they shall judge expedient,
but before the declaration of. such dividend, each bank
shall carry one tenth of its net earnings of the preceding
half year to its surplus fund until the same shall amount
to twenty per cent, of its capital stock.
Not more than ten per cent, of the capital paid in shall
6
82 PRINCIPLES AND PRACTICE OF FINANCE.
be Jpoaned to any individual corporation or firm, or the
different members thereof, but this does not prohibit the
discount of bills of exchange drawn against existing values,
or of commercial paper owned by the person negotiating
the same.
No loan or discount may be made on the security of
the stock of such bank, nor shall a bank become the pur-
chaser or holder of such shares except as security for a
previously contracted debt, and such stock shall within
six months be disposed of, on notice, at public sale, on
failure to do which a receiver may be appointed.
The liabilities of a bank shall at no time exceed its
capital stock paid in and undiminished, except on de-
mands of the following nature :
1st. Notes of circulation.
2d. Moneys deposited with or collected by the asso-
ciation.
3d. Bills of exchange or drafts drawn against money
actually on deposit to the credit of the association, or
due thereto.
4th. Liabilities to the stockholders of the association
for dividends and reserve profits. Its circulating notes
shall not be pledged or hypothecated to procure money
to be paid in on, or to increase its capital.
No portion of its capital, either in the form of dividends
or otherwise, shall be withdrawn by the association or any
member.
No dividends shall be declared in excess of the net
profits of the bank, a*fter deducting all losses sustained
and bad debts contracted. Debts on which interest is
due and unpaid for six months, unless well secured and
in process of collection, shall be considered "bad debts."
" Every association which shall have failed to pay up its
capital stock, as required by law, and every association whose
capital stock shall have become impaired by losses or other-
wise, shall, within three months after receiving notice thereof
NATIONAL BANKS. 83
from the Comptroller of the Currency, pay the deficiency in
the capital stock, by assessment upon the shareholders pro
rata for the amount of capital stock held by each ; and the
Treasurer of the United States shall withhold the interest
upon all bonds held by him in trust for such association upon
notification from the Comptroller of the Currency, until other-
wise notified by him.
" And provided. That if any shareholder or shareholders of
such bank shall neglect or refuse, after three months' notice,
to pay the assessment, as provided in this section, it shall be
the duty of the board of directors to cause a sufficient amount
of the capital stock of such shareholder or shareholders to be
sold at public auction (after thirty days' notice shall be given
by posting such notice of sale in the office of the bank, and by
publishing such notice in a newspaper of the city or town in
which the bank is located, or in a newspaper published near-
est thereto), to make good the deficiency ; and the balance, if
any, shall be returned to such delinquent shareholder or
shareholders."
No bank shall pay out or put in circulation the notes
of any other bank which are not receivable and redeem-
able at par by such bank.
Over-certification of checks is strictly prohibited, render-
ing officers or clerks liable to imprisonment for not less
than five years nor more than ten, and giving the Comp-
troller power to appoint a receiver.
A list of the shareholders shall be kept by the Presi-
dent and Cashier, containing the names and residences of
the shareholders and the number of shares of stock held
by each, which list shall be subject to inspection by the
shareholders of the banks, creditors, and State officers au-
thorized to assess taxes, and on the first Monday of July
a copy of such list sworn to by the President or Cashier
shall be mailed to the Comptroller.
Five reports a year shall be mailed by each bank to the
Comptroller, verified under oath by the President and
Cashier and attested by at least three directors, giving in
84 PRINCIPLES AND PRACTICE OF FINANCE.
detail under proper headings the resources and liabilities
of the bank at the close of business of any past day by
him specified, and shall be mailed to the Comptroller
within five days after a request for same, and in the form
in which mailed to the Comptroller shall be published in
a newspaper, as heretofore described, and proof of such
publication sent the Comptroller. The Comptroller may
also, whenever he deems it desirable, call for special
reports.
Each bank must, within ten days after declaring any
dividend, report to the Comptroller the amount of such
dividend, also the amount of the net earnings, of such
bank in excess of such dividend, which report shall be
attested by the oath of the President or the Cashier.
A penalty of one hundred dollars a day for each day's
delay after the periods named in the last two paragraphs
is imposed for failure to make and transmit the reports
therein mentioned, which penalty, upon delay or refusal to
pay by the association after it has been assessed, may be
retained by the United States Treasurer, upon the order
of the Comptroller, out of the interest, as it may become
due, on the bonds deposited by said association to secure
circulation. All penalties collected under this section
shall.be paid into the Treasury of the United States.
The following taxes are payable, on the average amount
of its circulating notes, in January and July of each year
one half of one per cent.
Semi-annually on the average, deposits one fourth of one
per cent, and a like per cent, on the average amount of its
capital stock beyond the sum invested in United States
bonds.
It is required to report, within ten days from the first
days of January and July yearly, to the Treasurer the
average amount of its notes in circulation, of its deposits,
and of its capital beyond the amount invested in United
States bonds for the preceding half year. The penalty
NATIONAL BANKS. 85
provided for a failure to so report is two hundred dollars,
to be collected as above, or by suit.
The Comptroller upon the failure of any bank to make
such report shall assess the tax on circulation, on the
amount of notes delivered to such bank, and upon the
highest amount of its capital and deposits. These taxes
are collected out of the interest on the bonds to the credit
of the bank. Over-payments of taxes are refunded.
The National taxes just recited do not prevent the im-
position of State taxes, except that such taxes shall not
be of a discriminating nature.
Examiners may be appointed by the Comptroller with
the approval of the United States Treasurer to make an
examination into all the affairs of any national bank, and
report thereon. They shall have the power to examine
officers or clerks under oath, and call for the production
of any books and papers belonging to the bank which
they may deem necessary. The fees of such examiner or
examiners, for the examination of banks not located in
the redemption cities or in the States of Oregon, Califor-
nia, Nevada, or the Territories, shall be, for banks having
a capital of less than $100,000, $20; $ioo,ooo-$3OO,ooo,
$ 2 5 I $300,000 and less than $400,000, $35 ; $400,000 but
less than $500,000, $40 ; $5oo,ooo-$6oo,ooo, $50 ; $600,000
and over, $75.
These charges shall be assessed by the Comptroller
upon, and paid by the banks so examined.
The fees charged for the examination of banks in the
redemption cities 1 and in the States of Oregon, California,
or Nevada, or any of the Territories, shall be fixed by the
Secretary of the Treasury upon the recommendation of
the Comptroller. No person shall be appointed to exam-
ine the affairs of any bank of which he is a director or
other officer.
Any national bank may go into liquidation and be
1 There are now no redemption cities.
86 PRINCIPLES AND PRACTICE OF FINANCE.
closed by the vote of shareholders owning two thirds of its
stock, of which vote it shall be the duty of the directors
to cause notice, certified under seal by the President and
Cashier, to be sent the Comptroller, and have the same
published for two months, in a newspaper published in the
city of New York, and in a local paper as provided in
the case of other notices. The notice shall state that the
association is closing up its affairs, and shall notify the
holders of its notes and other creditors to present their
notes or claims for payment. Such association shall
within six months after such vote deposit with the Treas-
urer of the United States lawful money of the United
States sufficient to redeem all its outstanding circulating
notes, which money shall be placed to its credit upon
" redemption account " and duly receipted for by the
Treasurer.
An association which is in good faith winding up its
business for the purpose of consolidating with another
association, shall not be required to deposit lawful money
for its outstanding circulation ; but its assets and liabili-
ties shall be reported by the association with which it is
in process of consolidation. .
Upon the deposit of sufficient lawful money to redeem
its outstanding circulating notes, the United States bonds
transferred by such association to the Treasurer of the
United States shall be re-assigned to it, and its share-
holders are discharged of all liability upon such notes,
which shall be redeemed at the Treasury of the United
States ; but should such association fail within thirty days
after the expiration of the time specified to make said
deposit, and take up its bonds, the Comptroller may sell
the same at public auction in the city of New York, and
after providing for the redemption and cancellation of its
circulating notes, and expenses of sale, he shall pay over
any balance remaining to the bank or its legal represen-
tatives.
NATIONAL BANKS. 8/
Redeemed notes shall be destroyed.
Upon the failure of a bank to redeem its circulating
notes either at its place of business or designated place
of redemption, the holder may cause the same to be pro-
tested in one package by a notary public, unless such
protest is waived by the President or Cashier of such
bank, and he delivers to the party making such demand
an admission in writing stating the time of the demand,
the amount demanded, and the fact of the non-payment
thereof. The notary shall forward such protest or ad-
mission to the Comptroller, retaining a copy thereof. If,
however, satisfactory proof is produced to the notary
public that the payment of the notes demanded is re-
strained by order of any Court of competent jurisdiction,
he shall not protest the same. The holder can recover
for only one protest fee on the same day.
Upon such notice of protest of the notes of a bank,
the Comptroller may order an examination of such bank
by a special agent, and if satisfied by his report, that it
has refused to redeem its notes, and is in default, may,
within thirty days after the reception of such notice of
such failure, declare the bonds deposited by such associa-
tion forfeited to the United States.
After failure to pay any of its circulating notes, except
by order or injunction of Court, such bank is forbidden to
continue its business.
Notice shall be given to the holders of the notes of such
defaulting bank by the Comptroller to present them for
payment at the United States Treasury, and he may cancel
an amount of bonds deposited by said bank equal at
current market rates, not exceeding par, to the notes
paid.
The United States has a first lien upon the assets of all
national banks until it has been reimbursed for the amount
of any payments made by it on account of the circulating
notes of said defaulting association.
88 PRINCIPLES AND PRACTICE OF FINANCE.
The bonds on deposit may be sold at public or private
sale by the Comptroller to redeem the circulating notes
of any delinquent bank, but at no price less than par or
less than the market value at the time of sale.
The Comptroller shall, upon becoming satisfied of the
refusal of any national bank to redeem its notes, or of its
insolvency, or its violations of those provisions of the
National Banking Act, which authorize the appointment
of a receiver for a non-compliance, therewith appoint a re-
ceiver with the usual powers, and require of him a bond
in such sum as he shall deem necessary. The receiver so
appointed shall pay over all moneys collected by him to
the Treasurer of the United States, subject to the order
of the Comptroller. The Comptroller shall, upon the
appointment of a receiver, give three months' notice to
creditors to present claims against such bank.
It is necessary to say but little more of that part of the
national banking law which relates to the dissolution of
banks and the placing of them in the hands of receivers,
as the law in regard to receiverships, etc., is not wholly
covered by the National Banking Act, but is to a large
extent that laid down in the Revised Statutes and the
Civil Codes of the several States in reference to receiver-
ships in general.
While the statute law on the subject is very strict and
rigorous in its dealings with all violators of its commands,
or failures to comply with its provisions, yet the extreme
penalties provided are not always enforced, as great in-
terests would often be seriously damaged by a rigid en-
forcement of those provisions which are meant not for
the oppression of banks but rather for the protection of
the general public. These are considerations which al-
ways weigh with the bank examiners and the officials
who act upon their reports.
In cases of great money stringency or panics, it is sel-
dom that some of the banks do not violate one or more
NATIONAL BANKS. 89
of the injunctions of the national banking law ; but it
would be obviously ruinous, not only to the interests of
the community in which such bank is situated, but often-
times to the country at large, to forfeit the charter of a
bank for some minor offence. And while it is not in-
tended that bank officials should be allowed to violate or
fail to comply with the law, still it may be remembered
that all the actions of the bank examiners and others are
or should be tempered by that good sense which is al-
lowed them under the expansive expression, " in the dis-
cretion of the Comptroller," and it is wise for all interests
that a competent and honest Comptroller should have
the right to exercise his discretion.
Upon the putting of a bank into the hands of a
receiver, it is then in the hands of the Courts, the same
as any other receivership, and is therefore subject to the
laws governing receiverships, with the single exception
that the circulating notes of such bank, being secured by
a deposit of United States bonds, are redeemed by the
Government, and the bonds held as collateral sold ; the
surplus resulting from such sale, after the incidental ex-
penses are paid, is turned over to the receiver and paid
out by him by way of dividends on obligations of the
bank. Should a surplus still remain, it is paid over to
the shareholders.
All other claims against a defunct national bank are
collected in the manner like claims are recovered against
any other corporation insolvent or in liquidation.
CHAPTER III.
State Banks New York State Banks of Deposit, and Banking Law.
State Banks. State Banks are organized under and
exist subject to the laws of the State in which they are
located, and inasmuch as we are now the proud possessors
of forty-four States, even if some have not yet reached the
stage of maturity where they can rejoice in a banking law
better than all the others, still there are too many State
banking laws to admit of even a digest of them here. It
is necessary, however, that the salient features of the bank-
ing laws of the State of New York, recognized as one of
the best, should be given.
No attempt will be made to explain the cause of the
failure of many of the State banking laws prior to 1862,
beyond the fact that, in a majority of cases, they imposed
insufficient restrictions in relation to the issue of circulat-
ing notes, allowing notes to be issued against railroad
bonds, and in some instances against real estate ; permit-
ting loans on real estate (which is always considered poor
policy for a bank of deposit, as real estate is not readily
convertible into cash), imposed no extra liability on di-
rectors, and permitted the banks' own stock, to be pledged
as security for loans ; but most important of all, they pro-
vided for no given percentage of coin or bullion, or, at any
rate, an insufficient percentage for the redemption of cir-
culating notes. The banks, not being required to keep a
certain percentage of gold and silver on hand in the shape
90
STATE BANKS. 91
of a redemption fund, did not do so, and when the crisis
came there was comparatively little " lawful money " to
be had ; what little there was at once commanded a large
premium, and, owing to the then lack of telegraph and
transportation facilities, it was not possible to have Lon-
don or New York come to the rescue, as it is to-day. In
other words, whatever the object may have been, the
effect of this lack of provision for a sufficient specie re-
demption fund was to greatly increase the..amount of cir-
culating notes without increasing the supply of the only
thing in which they could be redeemed? Nor were these
banks, for the reason just given, in any better position to
redeem the notes of any other bank, no matter how sol-
vent, than their own ; and the moment it was desired to
use these notes outside of the State in which they were
issued, it could only be done at a discount proportionate
to the cost of transportation to their bank of issue, the
shipment back of the coin or bullion therefor, and the risk
of the notes not being paid. These were the principal
causes of the variations in the price of paper money issued
by State banks.
What was a possible condition in the West between
1820 and 1860, a period when State government was, to
say the least, in a formative stage, when banking was sim-
ply being experimented with, when what are now large
cities were little more than villages of a few hundred in-
habitants and these widely separated, when the only
means of communication between town and town was that
furnished by the country roads or the steamers plying on
our rivers, is not possible to-day, with the instant means
of communication afforded by the telegraph, and the re-
liable information obtainable from mercantile agencies,
who have the financial rating of every institution and firm
in the country. In other words, what was possible
in a state of chaos and general irresponsibility, is not pos-
sible where order prevails, and the fullest information is
92 PRINCIPLES AND PRACTICE OF FINANCE.
instantly obtainable. Hence it is not fair to assume that,
because the issue of State bank-notes in the West was
unsuccessful then, it would necessarily be so now. In
speaking of State banks, there has been a general dispo-
sition to term the systems of all States, without discrimi-
nation, " wild-cat " and " yellow-dog " banking, and to
speak of the circulating notes of all State banks in these
decidedly inelegant but generally understood terms.
These words, however, when applied to the bank-notes
or banking systems prevailing in Indiana from 1834 down
to 1850, that of (Aio from 1845 to l %54> that of Louisiana
from 1842 till the capture of New Orleans by the Federal
forces in the late Civil War, and that of Massachusetts,
commonly known as the Suffolk Bank system, and also
that of New York, which largely served as a model for
the present National Bank Act, are absolutely misleading
and false.
These systems were all based on sound principles, many
of them very scientific, and they would doubtless, if not,
so far as the issue of notes is concerned, rendered in-
operative by the practically prohibitory tax levied by the
Federal Government on the circulating notes of State
banks, have continued to the present day showing satis-
factory results.
While some of the State banking laws were good and
calculated to insure all possible safety in the redemption
of circulating notes and other obligations, it must be said
that even at most, if modelled on the National Bank-
ing Act and the State guaranteeing their notes, they could
only offer the guaranty of that particular State, and that
could never be as generally acceptable a guaranty as that
of the Federal Government.
New York State Banking Laws. In speaking of the
banking laws of the State of New York it may be said
parenthetically that these laws do not relate exclusively
to banks of deposit, but relate also to savings banks, trust
STATE BANKS. 93
companies, building and mutual loan associations, co-
operative loan associations, mortgage, loan, and invest-
ment corporations, and safe-deposit companies, all of
which are rightly considered as belonging to banking.
But we will only at present discuss that portion of the
law which relates to banks of deposits.
The law defines " Bank " as follows :
" Any moneyed corporation authorized by law to issue bills,
or notes, or other evidences of debt for circulation as money,
or to receive deposits of money and commercial paper, and
to make loans thereon, and to discount bills, notes, or other
commercial paper, and to buy and sell gold and silver bullion
or foreign coins, or bills of exchange."
The act continues the State Banking Department, un-
der the direction of a superintendent, who is appointed by
the Governor for the term of three years and given power
to appoint a deputy, clerks, and examiners. The expenses
of his office are defrayed by the corporations and indi-
viduals required by the act to report to him.
The power of the Superintendent over the State banks
is practically the same as the power of the Comptroller
over the national banks, and no bank may transact any
business without his approval and a certificate from him
that it has complied with the law and is authorized to do
business. He is required through some representative to
examine each banking corporation, other than savings
banks, at least once a year, and each savings bank once
in two years, and oftener if he deem it expedient so to do.
No examiner shall be appointed as the receiver of the
corporation which he examines.
The president or cashier of every banking corporation,
under the State laws, is required at least once a year to
make a comparison of securities deposited in the office
of the Superintendent with the books of the Banking
Department.
94 PRINCIPLES AND PRACTICE OF FINANCE.
As in the case of the national banks, no bank, nor indi-
vidual banker, who issues circulating notes, is permitted to
commence business until the receipt of a certificate from the
Bank Department authorizing such commencement, which
certificate is only issued after examination as to the finan-
cial standing of such bank or banker, satisfactory to such
department, and a deposit with such department of secu-
rities to the amount of 10 per cent, of its paid-up capital,
but in no case less than the following : In cities containing
500,000 or more inhabitants, $100,000 ; 100,000 to 500,000
inhabitants, $50,000 ; 25,000 to 100,000 inhabitants, $30,-
ooo; and in cities of less population, $25,000; and the ap-
proval of such securities by such department. Nor shall such
bank commence business until its president and cashier, or
treasurer, or secretary, or its two principal officers, shall
have made an affidavit stating that the whole of its capital
stock, or such portion thereof as by law shall be required
to be paid or secured before the commencement of its
operations, has been actually paid or secured to be paid
according to law, and such bank shall cease to be a corpo-
ration if such affidavit is not filed within a year from the
time its charter is granted.
In Section 14 is found the principal difference between
the State and the National banking systems in regard to
the class of securities allowed to be deposited with the
respective banking departments :
" And every such corporation thereafter proposing to engage
in such business [i.e., the banking business] in this State, shall
before engaging in such business transfer and assign to the
Superintendent registered public stocks or bonds of the United
States, or of this State, or of any city, county, town, village, or
free school district in this State authorized by the Legislature to
be issued, to the amount in value, and to be at all times so
maintained by the corporation, of 10 -per cent, on its paid-up
capital stock ; but no less in any case than $100,000 in cities
the population of which exceeds 500,000 inhabitants, $50,000
Sl^ATE BANKS. 95
in cities of 100,000 inhabitants, and not less than $30,000 in
cities containing more than 25,000 inhabitants. Such stocks
must be registered in the name of the Superintendent."
Foreign banking corporations doing business in the
State of New York are required to make the same deposit
as State banks, and on failure to do so the State may re-
strain them from the transaction of their business therein.
Securities deposited may be exchanged for other securi-
ties by the consent and with the approval of the Superin-
tendent, and any excess thereof beyond the amount
required may be refunded.
Bonds and mortgages on real estate may also be deposited,
with the approval of the Superintendent, as part of the col-
lateral for the issue of circulating notes, but in such case
the president or authorized agent of every corporation
depositing the same shall annex to every such mortgage
his affidavit that the mortgage was made and taken in
good faith for money loaned by the corporation which he
represents, to the amount therein named, and that he has
reason to believe that the premises thereby mortgaged are
worth at least 75 per cent, more than the amount of the
mortgage. In the discretion of the Superintendent the
report of any bank examiner shall be published in the
State paper, and in at least one daily newspaper in the
city of New York, and also a paper in the county where
the principal place of business of such corporation or
individual is located.
Section 17 is similar in its purport to the provision of
the National Banking law in regard to the impairment of
the capital, but instead of giving the Superintendent
power, if such impairment is not made good, to place the
bank in the hands of a receiver, it directs the Attorney-
General to institute proceedings for the closing of such
corporation or bank.
In case banks or private bankers refuse to give such in-
g6 PRINCIPLES AND PRACTICE OF FINANCE.
formation as may be demanded by the Superintendent or
his agent, or submit their books to examination, the
Superintendent is not allowed to take such heroic meas-
ures as is the Comptroller of the United States, but the
Attorney-General must institute proceedings.
Creditors of, or shareholders in, any State banking
corporation whose debts or shares shall amount to $1000
or more, may apply to the Supreme Court for an order
permitting and directing an examination of the affairs of
such corporation, and the Court may order such exami-
nation to be made by a referee, to ascertain the safety of
the investments and the prudence of the management of
the corporation ; the result of which examination, with
the opinion of the referee, may be published as directed
by the Court. There is no similar provision in the Na-
tional Bank Act.
Every corporation subject to the banking laws of this
State shall make a written report to the Superintendent
of Banks in form prescribed by him ; in the case of a bank
of deposit at least once in three months, on a day to be
designated by the Superintendent.
The law imposes a forfeiture of $100 by any bank, and
of $10 by any other corporation, subject to the banking
law for each day intervening between the time such report
should have been filed and the day when it actually is
filed, and also that any corporation failing to make two
successive reports as required in Section 21, shall forfeit
its privileges as such bank and its business shall be
closed.
A summary of each report other than those of savings
banks shall be published by the Superintendent, within
thirty days after the same shall have been filed, in a
paper at Albany, in which notices of State officers are
required by law to be published, and the separate report
of each corporation shall be published by it in at least one
newspaper in the place where its business is located ; or if
STATE BANKS. 97
there be no newspaper in such place, in the nearest place
in which a newspaper is published.
The Superintendent is required to render an annual
report to the Legislature at the commencement of its
first session similar to that required of the Comptroller of
the Currency.
No corporation shall make any loan or discount to any
person, company, corporation, or firm, or upon paper upon
which any such persons, company, corporation, or firm
may be liable, to an amount exceeding the one fifth part
of its capital stock actually paid in, and surplus. Under
the national banking laws no bank is allowed to make a
loan to any such person in excess of 10 per cent, of its cap-
ital, but under both laws the discount of bills of exchange
drawn in good faith against actually existing values or
commercial or business paper actually negotiated by the
person issuing the same shall not be considered as a part
of any such loan or discount.
** No such corporation nor any of its directors, officers,
agents, or servants shall directly or indirectly purchase or be
interested in the purchase of any promissory note or other evi-
dence of debt issued by it for a less sum than shall appear on
the face thereof to be due. Every person violating the pro-
visions of this subdivision shall forfeit three times the nominal
amount of the note or other evidence of debt or purchase."
This provision is entirely lacking in the national bank-
ing law, for what reason is not apparent.
The surplus profits, from which alone a dividend can
be made, is ascertained by charging in the account of
profit and loss, and deducting from the actual profits, all
expenses paid, interest on debts, and all losses sustained.
Interest unpaid, although due or accrued on debts owing
to the corporation, should not be included in the calcula-
tion of its profits previous to a dividend. Losses in
excess of its undivided profits should be charged against
98. PRINCIPLES AND PRACTICE OF FINANCE.
principal, and no dividend should be made until such
deficit of capital be made good.
Any bank may, after notice of its intention so to do,
make application signed by its two principal officers to
the Superintendent for leave to change its place of busi-
ness to another in the same or an adjoining county, but
such notice must be upon the vote of a majority of the
Board of Directors, accompanied by the written assent of
two thirds in amount of the stockholders.
In the case of foreign corporations it is necessary for
them to secure the written permission of the Superinten-
dent and a written certificate from him stating that such
corporation has complied with all of the provisions of the
banking law applicable to it before it is authorized to
transact its business within this State. Such permission
and certificate continues in force but one year from its
date, but may be renewed from time to time for a like
period.
Foreign corporations must execute and file with the
Superintendent of Banks a written instrument appointing
him their true and lawful attorney, upon whom process
may be served in any legal action or proceeding. Upon
the service of such process upon the Superintendent as
the attorney he shall forward a copy thereof to such
foreign corporation.
" If it is made to appear upon application of any creditor or
shareholder in any such corporation, company, or association,
residing in this State, that the funds on deposit with the
Superintendent of Banks are insufficient to pay in full the
creditors and shareholders residing in this State, or that it is
insolvent, or has suspended business, or that insolvency or
bankruptcy proceedings have been taken against it either
voluntarily or involuntarily, the Supreme Court may, upon due
notice to the corporation, company, or association, as the court
shall prescribe, appoint a receiver of such funds ; and pending
such application, the court or judge thereof may enjoin the
STATE BANKS. 99
commencement or prosecution of any other action or proceed-
ing against such corporation, company, or association. Upon
the qualifications of such receiver, the Superintendent of Banks
shall pay over to him the funds remaining in his hands less any
charges which he may have against the same, and the receiver
shall distribute such funds among the creditors and share-
holders of the corporation, company, or association residing in
this State in the manner prescribed by law for the payment of
creditors in the case of voluntary dissolution of a corporation."
Article 2 of the State law prescribes more in detail the
privileges, functions, duties, and requirements of banks.
Section 40 provides that five or more persons may
become a bank by making, acknowledging, and filing in
the office of the clerk of the county where such bank is to
be located and in the office of the Superintendent of
Banks a certificate in duplicate, which shall state, first, the
name by which such bank is to be known ; second, the
city, town, or village where its business is to be con-
ducted ; third, the amount of its capital stock, and the'
number of shares into which the same shall be divided ;
fourth, the names and places of residence of the stock-
holders and the number of shares held by each ; fifth, the
dates at which such corporation shall commence and
terminate ; sixth, the number of directors of the bank
(not less than five), and the names of the stockholders who
shall be directors for the first year of its incorporation.
This certificate must be recorded by the county clerk
and by the Superintendent of Banks in books kept by
them respectively for that purpose.
Provision may be made in such certificate for an
increase of the capital stock, for the manner in which the
stock of the corporation may be transferred, the number
of directors necessary to constitute a quorum, and for the
time when the annual election of directors shall be held.
Any change in any of the matters enumerated in such
certificate shall only become valid upon the execution of
IOO PRINCIPLES AND PRACTICE OF FINANCE.
a certificate thereof filed and recorded in like manner as
the certificate of incorporation.
An individual banker desiring to transact business
under the State banking laws must file a certificate similar
to the above, and for failure so to do is subject to a forfeit
of $1000 to the people of the State for each neglect.
Since the enactment of the National Banking Act there
has been no inducement to private bankers to avail them-
selves of the provisions of the State law, and as none
now issue circulating notes, they prefer to conduct their
business without State interference.
Section 43 enumerates the general powers granted.
" In addition to the powers conferred by the general and
stock corporation laws every bank shall have power :
" i. To exercise by its board of directors, or duly authorized
officers or agents, subject to law, all such incidental powers as
shall be necessary to carry on the business of banking ; by dis-
counting and negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt ; by receiving deposits ;
by buying and selling exchange, coin, and bullion ; by loaning
money on personal security ; and by obtaining, issuing, and
circulating notes according to the provisions of this chapter.
" 2. To take and become the owner of any stock or bonds or
interest-bearing obligations of the United States, or of the
State of New York, or of any city, county, town, or village of
this State, the interest on which is not in arrears.
" 3. To purchase, hold, and convey real property for the
following purposes :
" (a) Such as shall be necessary for its immediate accommo-
dation in the convenient transaction of its business.
" (b) Such as shall be mortgaged to it in good faith, by way
of security for loans made by, or moneys due to, such corpora-
tion.
" (c) Such as shall be conveyed to it in satisfaction of debts
previously contracted in the course of its dealings.
" (d) Such as it shall purchase at sales under judgments,
decrees, or mortgages held by it.
STATE BANKS. IOI
" No such corporation shall purchase, hold, or convey real
property in any other case or for any other purpose, and all
conveyances of real property shall be made to it directly and
by name.
" All such corporations and all individual bankers shall be
banks of discount and deposit as well as of circulation, and the
usual business of banking of such corporations or individual
bankers shall be transacted at the place where such corpora-
tions or individual bankers shall be located, agreeably to the
location specified in the certificates required by law to be made
by them respectively, and filed in the office of the Superintend-
ent of Banks, and not elsewhere, except as otherwise provided
in this chapter in relation to the redemption of circulating
notes by agents."
By Section 44 every bank or individual banker is re-
quired at all times to have on hand in " lawful money " of
the United States, when such bank or banker transacts
its or his business in a city of more than eight hundred
thousand inhabitants, at least 15 per cent, of the aggregate
amount of its or his deposits, and at least 10 per cent, of
such deposits if such business is transacted elsewhere in
the State. This amount shall be called its " Lawful Money
Reserve."
One half of such reserve may consist of moneys on
deposit, subject to call, with any bank or trust company
in this State having a capital of not less than $200,000,
and approved by the Superindendent of Banks as a
depository of " Lawful Money Reserve."
If the " Lawful Money Reserve " of any bank or indi-
vidual banker shall be less than the amount above stated,
then such bank or banker shall not increase his liabilities
by making any new loans or discounts " otherwise than by
discounting bills of exchange payable on sight," nor shall
it or he declare dividends or profits until such lawful
money reserve has been restored.
The Superintendent of Banks -may require such bank
102 PRINCIPLES AND PRACTICE OF FINANCE.
or banker to make good such money reserve, and if it or
he shall fail for thirty days so to do such bank or individ-
ual banker shall be deemed insolvent and may be pro-
ceeded against as an insolvent moneyed corporation.
The act of April 23, 1895, which repeals sections forty-
five, forty-six, forty-seven, and forty-eight of the banking
law, and which went into effect immediately, provides,
that any two or more corporations, except savings banks,
organized under the banking law or any section thereof,
are authorized to consolidate upon compliance with the
following conditions : The boards of directors of the re-
spective corporations may enter into an agreement of
merger under their respective corporate seals, which
agreement shall be subject to the approval of the Super-
intendent of Banks, and which shall be submitted to the
stockholders of each of such corporations, at a meeting,
called upon at least two weeks' notice, and published for
at least two successive weeks in a newspaper in the coun-
ties in which such corporations are located, and which
agreement shall be approved at each of such meetings of
the respective stockholders separately by stockholders
owning at least two thirds of the stock ; such agreement
and verified copies in duplicate of the proceedings of the
stockholders of the respective corporations shall be filed
with the Superintendent of Banks, and with the clerk of
the county of the domicil of the corporation into which
the other is merged. Upon which the merger is deemed
consummated, and the consolidated corporation may call
in the stock of the old corporations, and issue new stock.
Any stockholder not voting in favor of such merger,
may at such meeting or within twenty days thereafter
object to such merger and demand payment for his stock.
The consolidated corporation shall have all the rights,
powers, and privileges of the old companies, and be re-
sponsible for their debts and obligations.
At least 50 per cent, of the capital stock of every bank
STATE BANKS. 1 03
shall be paid in before it shall commence business, and the
remainder of its capital stock shall be paid in instalments
of at least 10 per cent, each on the whole amount of the
capital, as frequently as one instalment at the end of each
succeeding month from the time it shall be authorized by
the Superintendent of Banks to commence business, and
the payment of each instalment shall be certified to the
Superintendent under oath by the president or cashier of
the corporation.
Only citizens of the United States are eligible as direc-
tors, and at least three fourths of the directors must be
citizens of the State, and in case of a bank having a capi-
tal of $50,000 or over, each director must own in his own
right stock of the bank equal in value to $1000, and in
case of a bank having a less capital than $50,000 must be
a stockholder in his own right to an amount equal to at
least $500, such directorship to terminate upon his ceas-
ing to possess such amount of stock. Directors shall hold
office for one year and until their successors are elected
and have qualified. The president is to be chosen from
among the Board of Directors.
Each director, when appointed or elected, shall take an
oath that he will, so far as the duty devolves on him,
diligently and honestly administer the affairs of such cor-
poration, and will not knowingly violate, or willingly per-
mit to be violated, any of the provisions of law applicable
to such corporation, and that he is the owner in good faith
and in his own right of the number of shares of stock re-
quired by this chapter, subscribed by him or standing in
his name on the books of the corporation, and that the
.same is not hypothecated, or in any way pledged as
security for any loan or debt. Such oath shall be sub-
scribed by the director making it, and certified by the
officer before whom it is taken, and shall be immediately
transmitted to the Superintendent of Banks, and filed and
preserved in his office.
104 PRINCIPLES AND PRACTICE OF FINANCE.
" Except as prescribed in the stock corporation law, the
stockholders of every such corporation shall be individually
responsible, equally and ratably, and not one for another, for
all contracts, debts, and engagements of such corporation to the
extent of the amount of their stock therein at the par value
thereof, in addition to the amount invested in such shares.
" The term ' stockholder/ when used in this chapter, shall
apply not only to such persons as appear by the books of the
corporation to be stockholders, but also to every owner of
stock, legal or equitable, although the same may be on such
books in the name of another person, but not a person who
may hold the stock as collateral security for the payment of a
debt."
A stockholder who in good faith and without intent to
evade his liability as a stockholder transfers his stock on
the books of the corporation, when such corporation is
solvent, to any resident of this State of full age, is relieved
of the responsibility of a stockholder, and such responsi-
bility devolves upon the person to whom the stock is
transferred.
All contracts and all notes and bills issued by it and
put in circulation as money shall be signed by the presi-
dent or vice-president and cashier.
The rate of interest permitted to be charged is 6 per
cent., which interest may be taken in advance, reckoning
the days for which the evidence of debt has to run.
Knowingly taking, receiving, reserving, or charging a
greater rate of interest forfeits the entire interest which
the note, bill, or other evidence of debt carries with it, or
which has been agreed to be paid thereon, and the person
paying the same may recover back twice the amount of
interest thus paid, provided such action is brought within
two years from the time such excessive interest is taken,
but the discount of a bill of exchange, note, or other evi-
dence of debt payable at some other place than the place
of purchase, discount, or sale, at not more than the cur-
STATE BANKS. 10$
rent rate of exchange for sight drafts, or a reasonable
charge for the collection of the same in addition to the
interest, shall not be considered as taking or receiving a
greater rate of interest than 6 per cent, per annum.
The avowed object of this section is to place and main-
tain State banks on an equality in this particular with
national banks.
An exception is made to the above rule in the case of
advances of money repayable on demand to an amount of
not less than $5000 upon warehouse receipts, bills of lad-
ing, certificates of stock, certificates of deposit, bills of
exchange, bonds, or other negotiable instruments pledged
as collateral, when the banks and the borrower may agree
upon any rate of interest they choose.
In addition to securities deposited as collateral to its
circulating notes, each bank or banker before commencing
business shall place and keep on deposit with the Super-
intendent of Banks, stocks of this State or of the United
States bearing interest to the amount of $1000, to be
held as a pledge of good faith and a guaranty of compli-
ance with the banking laws of the State on the part of
such bank or individual banker, out of which interest the
Superintendent may retain any assessments or penalties
imposed upon such bank or individual banker after the
institution of proper legal proceedings.
Section 50 makes provision for the change of a State to
a National bank. This is already detailed in the chapter
on National Banks.
Incorporation as a National bank is deemed a surrender
of its charter as a State bank, and it shall cease to be a
corporation under the laws of the State, except that for
the term of three years thereafter its corporate existence
shall be deemed to continue for the purpose of prosecut-
ing and defending suits by and against it and of enabling
it to close its concerns and to dispose of and convey its
property. Such change, however^ shall not release any
106 PRINCIPLES AND PRACTICE OF FINANCE.
bank from its obligation to pay and discharge all the
liabilities created by law, or incurred by it before such
change.
Upon such change the plates and dies of any such bank
in the Banking Department shall be forthwith so obliter-
ated as to prevent all future use of the same.
Section 63 : " Whenever any banking corporation, organized
and doing business under the laws of the United States, shall
under the provisions of any act of Congress be authorized to
dissolve its organization as such national bank corporation,
and shall have taken the action required to effect such dissolu-
tion, a majority of the directors of such dissolved corporation
may, upon the authority in writing of the owners of two thirds
of its capital stock, execute the certificate of incorporation re-
quired by Section 40 of this chapter.
" Upon the execution and proof of acknowledgment of such
certificate, which shall also set forth the authority in writing of
the stockholders as required by this section, and upon filing a
copy thereof in the office of the Superintendent of Banks, with
proof that the original is duly recorded in the office of the
clerk of the county where any office of such corporation shall
be located, such corporation shall be held and regarded as an
incorporated bank under and in pursuance of the laws of this
State, and shall be entitled to all the privileges and be subject
to all the liabilities of banks so incorporated ; and thereupon
all the property of the dissolved national bank corporation
shall immediately by act of law and without any conveyance
or transfer be vested in and become the property of such State
bank. The directors of the dissolved corporation at the time
of such dissolution shall be the directors of the bank created
in pursuance hereof until the first annual election of directors
thereafter, and shall have power to take all necessary measures
to perfect its organization, and to adopt such regulations con-
cerning its business and management as may be proper and
just and not inconsistent with law."
The section relating to Circulating notes, plates, etc.,
will be here omitted, as State banks no longer issue circu-
STATE BANKS. IO/
lating notes, only one bank having out an issue of about
$2400. The sections relating to the issue of notes, de-
posit of securities to insure their payment, and other mat-
ters connected therewith are consequently omitted.
Section 76. After the application of the proceeds of
such security to the redemption of the circulating notes
presented within the time prescribed by Section 73, the
residue of such proceeds shall be deposited in the Treasury
and applied toward paying the ordinary expenses of the
Banking Department.
Notices required to be given to creditors of insolvent
banks shall be published at least six weeks in one or more
newspapers selected by the Superintendent.
Section 79. Any bank or its receiver or agents and
any individual banker or his legal representative or suc-
cessor may give notice to the superintendent of their or
his intention to close business.
After the payment of all lawful claims and demands
against such bank or banker they or he may divide the
remaining property of the bank or banker among the
stockholders or their personal representatives.
Section 82 prohibits the circulation of foreign bank
notes, by which is meant the notes of any bank situated
outside of the State of New York.
Section 83 provides that no bank shall pay out for
paper discounted or purchased any circulating note not
received by such bank at par.
No bank or individual banker shall issue or put in cir-
culation any bill or note of such bank or banker unless
the same shall be made payable on demand and without
interest, except bills of exchange on foreign countries or
places beyond the limits or the jurisdiction of the United
States, which bills may be made payable at or within the
customary usance, or at or within ninety-days' sight, and,
except certificates of deposit payable on presentation,
with or without interest, to bearer or to the order of a
108 PRINCIPLES AND PRACTICE OF FINANCE.
person named therein ; but no such certificate of deposit
shall be issued except as representing money actually on
deposit.
"All checks, bills of exchange, or drafts appearing on their
face to have been drawn upon any bank or individual banker
carrying on banking business under the laws of this State,
which are on their face payable on any specified day or in any
number of days after date or sight thereof, shall be due and
payable on the day mentioned for the paymeiit of the same,
without any days of grace being allowed, and it shall not be
necessary to protest the same for non-acceptance."
By the Act of May 9, 1894, " on all notes, drafts, checks,
acceptances, bills of exchange, bonds, or other evidences of
indebtedness made, drawn, or accepted by any person or cor-
poration after this act shall take effect and in which there is
no expressed stipulation to the contrary, no grace, according
to the custom of merchants, shall be allowed, but the same
shall be due and payable, as therein expressed, without grace.
" This act shall take effect and be in force on the ist day of
January, 1895."
Section 88. " No foreign corporation, other than a national
bank, shall keep any office for the purpose of receiving de-
posits, or discounting notes or bills, or issuing any evidence of
debt to be loaned or put in circulation as money within this
State."
Section 89. " No bank in this State or any officer or di-
rector thereof, shall open or keep an office of deposit or dis-
count other than at its usual place of business.
" Every such officer or director violating the provisions of
this section shall forfeit to the people of the State the sum of
$1000 for every such violation."
Section 90. " No person shall pay, give, or receive in pay-
ment, or in any way circulate or attempt to circulate any bank
bill or any promissory note, bill, check, draft, or other evi-
dence of debt, issued by any bank or individual banker, which
shall be made payable otherwise than in lawful money of the
United States.
STATE BANKS. 1 09
" Every person violating this provision shall forfeit to the
people of the State the face amount or value of such bill, note,
or other evidence of debt so given, paid, received, circulated,
or offered, to any person who will sue for the same sixty days
after the commission of the offence."
Section 91. "All bills, notes, or other instruments which
shall be issued by any bank or individual banker purporting
to be received in payment of debts due to it, shall be deemed
and taken to be promissory notes for the payment on demand
of the sum or value expressed in such instrument, and such
sum shall be recoverable by the holder or bearer of such in-
strument, in like manner as if the same were a promissory
note."
Section 92. "No person engaged in the business of bank-
ing in this State, not subject to the supervision of the superin-
tendent and not required to report to him by the provisions of
this chapter, shall make use of any office sign at the place
where such business is transacted, having thereon any artificial
or corporate name, or other words indicating that such place
or office is the place or office of a bank ; nor shall such per-
son or persons make use of or circulate any letter-heads, bill-
heads, blank notes, blank receipts, certificates, circulars, or
any written or printed or partly written and partly printed
paper whatever, having thereon any artificial or corporate
name, or other word or words, indicating that such business is
the business of a bank.
" Every person violating this provision shall forfeit the sum
of $1000. But this section shall not apply to any person or
persons engaged in the business of banking prior to October,
1892."
CHAPTER IV.
Methods of Business of Banks Loans Mutual Assistance Over-Certifi-
cation Reclamation Management Board of Directors Officers and
Employes.
Methods of Business. The method of conducting
business is in a general way the same in all banks, whether
national, State, savings, or private. They all receive money
from their depositors, on which savings banks and some
private banks allow interest, but State and national banks
generally do not. This money is again loaned at a higher
rate of interest than that paid to the depositors ; the dif-
erence in rate between the interest paid and the interest
received constituting the entire income of savings banks
and forming the principal income of all banks.
Of course, in the different banks the loans made by
them assume a different form, the law prescribing that
banks of deposit may negotiate loans on commercial
paper and personal securities, the National law forbid-
ding banks organized under it to loan on real estate.
Consequently, the bulk of all loans made by banks of de-
posit must be on commercial paper and personal security.
The laws of the State of New York forbid savings
banks loaning on commercial paper, and specify, with
great particularity, the kind of collateral on which they
may make loans, including in that collateral first mort-
gages on real estate, hence, a very large portion of their
loans are made on real estate.
no
METHODS OF BUSINESS OF BANKS. Ill
Banks of deposit, at one time, received a large income
from acting as the fiscal agent of corporations, but this
business has been almost entirely absorbed by trust com-
panies and private bankers, which, on account of their
fewer governmental restrictions, can offer greater accom-
modations to the companies for which they act when such
companies are in need of assistance.
Another source of revenue was in acting as the agent of
the Federal Government for the sale and registration of
United States bonds. This, however, no longer exists.
Although loans of banks of deposit, other than the dis-
count of commercial paper, are based generally on stocks,
shares, warehouse receipts, bills of lading, or certificates
representing the ownership of some commodity, as a
broad proposition it may be said that anything which
possesses a real tangible value is dealt in and money can
be obtained upon it.
Domestic exchange is also a source of large revenue to
both national and State banks of deposit.
Mutual Assistance of Banks. Any careful study of
the capital, surplus, amount of loans, etc., of the banks of
any large city in this country, and more particularly of
New York, cannot fail to convince one of the necessity of
banks extending to each other assistance. This assist-
ance is rendered only on a business basis, but could never-
theless be seldom dispensed with, and certainly not during
a stringency of money, when it is necessary that all our
banks should stand shoulder to shoulder, the stronger
assisting the weaker. A good illustration of this was the
acceptance, by all the bank members of the Clearing House,
of its certificates in payment of their daily balances in
1875, 1884, during the threatened panic following the em-
barrassment of the Barings, and again in 1893. The ordi-
nary form of assistance is that rendered by the re-discount
of paper, i. e., where one bank has more paper than it can
conveniently carry, it re-discounts a portion thereof with
112 PRINCIPLES AND PRACTICE OF FINANCE.
one or more banks. This aid is being constantly extended
by the banks in the larger cities to those in the smaller
cities and towns.
Over-Certification. At one time, the over-certifica-
tion of the checks of private bankers and brokers became
such a common matter, and one or two banks were so
badly crippled by the failure to make good these over-
certified checks, that the Comptroller of the Currency
found it necessary to threaten to enforce the provision in
the National Banking Act in relation thereto, which is
placing the bank in the hands of a receiver.
This inability to over-certify would have so seriously in-
terfered with the business of some few banks that they
resigned their National Bank charters and reorganized
under the State law, which is more liberal. Of course,
this over-certification can be easily avoided by the teller
stating he will pay the check in money, which cannot be
refused.
Reclamations. Reclamations of improperly or irregu-
larly drawn or endorsed checks, or checks which are not
good for the amounts called for, take place daily between
the various banks, each bank returning to the other the
checks drawn against it which for any reason it refuses to
pay ; the bank receiving the check crediting the same to
the bank returning it, just as though the same were paid
in cash, and charging the amount of such check to the
person depositing it.
Loans on Collateral. The cashier of the bank is the
man to whom the sufficiency of collateral is usually re-
ferred when a loan is sought, and oftentimes loans of hun-
dreds of thousands of dollars to well known houses are
negotiated over the telephone wires, the houses sending
the collateral over by messenger. Of course, these loans
being usually call loans, if the collateral is not satisfactory,
are immediately called in or other collateral' demanded.
Such loans are only made to houses with whom the bank
METHODS OF BUSINESS OF BANKS. 113
has long had dealings, and whose commercial rating is very
high. The writer has known of half a million dollars
being negotiated by telephone message. It is understood
that the borrower will furnish satisfactory collateral, and
the loan is generally simply placed to the credit of the
borrower on the books of the bank.
The Management of a Bank ; the Officers by whom
its Business is Conducted, and their Respective
Duties. Necessarily the management of a bank is largely
dependent upon its location and the character and amount
of its business, but speaking broadly it is safe to say that
the management of all large banks of deposit, and the
method and manner in which their business is conducted,
is essentially the same and differs only in detail.
The highest power of the bank is lodged in the Board
of Directors, whom we will consider first.
Board of Directors. In banks of deposit, both State
and National, the Board of Directors shall consist of not
less than five nor more than thirteen members. A person
to be qualified as a Director must be the absolute owner
of ten unpledged shares of the capital stock of said bank,
and three fourths of the members of the Board must be
residents of the State in which such bank is located. The
State law provides that in banks whose capital does not
exceed $50,000, each director must be possessed in his
own right of at least five unpledged shares of the capital
stock of such bank ; in banks whose capital is in excess of
$50,000, each director must be the owner of ten unpledged
shares ; and three fourths of the members of such Board
shall be residents of the State, city, and county where
such bank is located.
The selection of the directors of a bank is largely gov-
erned by the business which such directors it is thought
can bring to the bank, the position they occupy in the dif-
ferent trades or professions, their knowledge of the finan-
cial and business standing of persons likely to do business
114 PRINCIPLES AND PRACTICE OF FINANCE.
with such bank, and the general reputation they enjoy in
the community.
Banks in the larger cities are often located in a neigh-
borhood the business of which is almost exclusively con-
fined to one trade. In New York, for instance, there are
banks whose business is derived almost solely from the
dry-goods trade, which banks are necessarily located in a
convenient locality to such trade. Other banks derive
their business from other trades. In the case of banks
whose business is confined largely to one trade, the direc-
tors are selected naturally with special reference to their
influence in that trade, and their knowledge of the standing
of firms engaged therein.
While the law only prescribes that a director should be
the holder of five or ten shares of stock, the judgment of
an intelligent community dictates that a director should
have a more substantial interest than this ; and, as a mat-
ter of fact, most of the directors of banks are chosen, not
only on account of the qualifications before mentioned,
but on account of their large holdings of stock in the
institutions which they serve.
In the first instance, of course, relying to some extent
on the advice of the officers of the bank, who are sup-
posed to be particularly well informed as to the character
of persons desiring loans, they settle upon the amount of
accommodation to be extended to each depositor. In many
banks loans are only made upon their approval, and in
the first instance no large amount of credit is extended
to any person, firm, or corporation without their sanction ;
and while the exigencies of business are such that it will
not permit that all paper should be submitted to them
before loans are negotiated thereon, still it is true that
loans, being ^ade in many instances subject to call, in
order to stand must receive the approval of the Board.
And as banks make a certain class of loans only on condi-
tion that they may call upon the borrowers at any time to-
METHODS OF BUSINESS OF BANKS. 115
reduce the amount of their indebtedness, which, taken in
connection with the above stated fact that the amount,
character, and time of accommodation are, in the first in-
stance, prescribed by the Board, relieves the executive
officer of much responsibility that is generally supposed
to devolve upon him personally.
The compensation of the directors is usually in the form
of a charge for each Board meeting attended, although in
many banks they receive no specific compensation other
than the benefit they derive from the additional value and
dividends on their stock to which their advice is supposed
to contribute.
Next in importance to the Board of Directors is the
executive head of the bank, generally known in the
United States as the President ; in England, in the case
of the Bank of England, as the Governor ; and in other
banks as the Manager, and in Canada as the Manager,
General or Resident, as the case may be.
In the United States the President of a bank is always
a member of the Board of Directors, but in England the
Manager is never a member of the Board of Trustees
or Directors.
President. The President, with the concurrence and
sanction of the Board of Directors, has absolute control
over the policy and discipline of the bank, and to him all
the other officers except directors are answerable for the
faithful discharge of their various duties. He is usually
selected with especial reference to his knowledge of the
character of the business to be transacted by the bank
over which he is called upon to preside, his influence with
the trade which the bank desires to reach, his knowledge
of credits, and his general business reputation in the
community, on which so much depends the success of the
bank. It is his province, assuming that he is the active
head of the bank, which in some cases he is not being
occasionally simply a figure-head, but this is not generally
Il6 PRINCIPLES AND PRACTICE OF FINANCE.
true in large banks, to keep himself not only thoroughly
posted in regard to the standing of the various persons
with whom the bank does business, but also with the con-
dition of the trade in which those people are engaged,
because while the person or firm negotiating a loan may
be perfectly solvent, it must be borne in mind that a large
part of the loans of banks are made against values in the
shape of merchandise, and not against the bare paper,
and it might easily happen, should the president of a
bank or the person in charge of the loans be ignorant of
the value of the merchandise on which a particular loan
was negotiated, that that merchandise might decrease so
rapidly in value as to form no safe security for the loan,
and occasion legal proceedings against the makers of the
note for the deficiency.
The president should have a pecuniary interest as a
stockholder in the bank which he serves. This may not
necessarily be larger than the interest of other stockhold-
ers or directors, because if the interest he has is his greatest
interest, it is an interest sufficient to influence, apart from
his reputation which is at stake, his utmost efforts for the
benefit and success of the institution whose policy and
business he is called upon to direct.
In his official capacity the president is called upon to
sign all contracts in behalf of the bank, all the circulating
notes, certificates of stock and other evidences of indebted-
ness issued by the bank, save certificates of deposit and
cashier's checks, which are signed by the cashier. The
president is required to give no bonds. All the lesser
officers holding responsible positions and having directly
to do with the bank's assets, are :
Vice- President. What has been said with reference to
the President applies with somewhat modified force to the
vice-president, unless he should be the real head of the
bank. His duties, in the absence or inability to act of
the president, are the same as those of the president. In
METHODS OF BUSINESS OF BANKS. 1 1/
the larger banks, where there are necessarily many depart-
ments, and even these are sometimes subdivided, the vice-
president, in addition to being called upon to serve in the
absence of the president, often has charge of some partic-
ular department, generally the credit department ; to his
duties in which department the remarks made in relation
to the qualifications of the president apply.
Cashier. The mechanism of the bank is directly under
the control of the cashier, who is, however, accountable to
the Board of Directors, by whom he is appointed and to
whom he gives bonds for the faithful and efficient dis-
charge of the duties, not only of himself, but of his sub-
ordinates, over whom he is supposed to exercise a direct
supervision.
In banks where the president or vice-president is not
actively in charge, the cashier assumes largely the duties
and responsibilities which the president would be called
upon to assume and perform, but in all banks the cashier
is necessarily conversant with the general policy and
management of the bank, the line of credits to be ex-
tended to its various depositors, and in most instances,
either independently or acting on the advice of the direc-
tors, regulates the same, and must keep himself acquainted
with the condition of the various accounts, so as to deter-
mine which accounts are profitable or otherwise.
The cashier is called upon to sign all contracts, agree-
ments, circulating notes, or evidences of debt issued by
the bank, besides cashier's checks and certificates of deposit.
He also signs checks drawn on other banks. In his ab-
sence they are signed by the president ; also drafts and
notes sent to other banks are endorsed by him.
The cashier also generally conducts the correspondence
of the bank, acts as secretary of the Board of Directors,
and keeps the minutes of all meetings of the board, as
well as of the stockholders.
Assistant Cashier. The assistant cashier usually exer-
Il8 PRINCIPLES AND PRACTICE OF FINANCE.
cises special supervision over the discount books, and
attends to the notes and bills payable, besides his principal
duty which is to relieve the cashier of matters of detail,
and to keep himself so thoroughly informed in regard to
the working of the bank, the accounts of depositors, etc.,
that he can readily supply the cashier, vice-president, or
president with information in regard to them. In many
banks the correspondence is conducted very largely over
the signature of the assistant cashier, and he is specially
empowered to endorse checks, drafts, etc., for collection.
Paying Teller. The paying teller is often called the
" first teller." His duties are perhaps more exacting than
those of any other officer of the bank. He is generally
the custodian of its cash, and is personally responsible for
the same. In the safe or vault of the bank certain com-
partments are set aside for his exclusive use, to which
compartments in many banks there is an outer and inner
door, the combination of one of which is known only to
him and the combination of the other is known only to
some other officer, usually the cashier. In these compart-
ments are kept the greater part of the cash belonging to
the bank, and in which each day, after the close of busi-
ness, and the balancing and proof of the cash, are placed
all the cash, coin, etc., which have been received during
the day by the receiving teller, the note teller, and the
collection clerks, all of whom turn over to him, on his
receipt, the amounts received by them, as also does the
paying teller, the cash contents of his till, a drawer arranged
into numerous spaces for the convenient holding of bills
of various denominations.
Each morning at the opening of business for the day,
the paying teller takes from such compartments the
amount of money he thinks will be required to pay the
checks presented at his window, and later the amount
necessary to settle the Clearing-House balance, should
his bank be debtor. This balance in normal times is sent
METHODS OF BUSINESS OF BANKS. 119
in cash to the Clearing House by trusted employes;
although, as has been before stated, in times of great
financial stringency the Clearing House issues, on the
deposit of satisfactory collateral, " Clearing House Certifi-
cates," which are receivable by it in payment of debtor
balances, and must, of course, to be of any real use, be
also accepted by creditor banks in payment of debits to
them, as the Clearing House has no other money than
that paid in by the debtor banks. With this amount the
paying teller is credited.
The paying teller's desk is usually a model in the way
of neatness and convenience of arrangement. On top of
it to the left are the trays containing coin, piles of gold
and silver of various denominations; further to.' the left
and a little in front of these trays are stacks of bills of
different denominations done up in packages, each of
which has been previously counted and marked. In the
till proper, which is a drawer underneath the desk, the
bills of unusual denominations are assorted, and those
needed to make change where checks are drawn for odd
or broken amounts. The bills in the stacks are usually
done up fifty in a package, hence a package of ones would
contain $50, of twos $100, of fives $250, of tens $500, and
of twenties $1000; the larger bills are not generally put
up in packages, and when called for, the teller upon tak-
ing them out usually puts a slip in the compartment
from which they are taken, or the same amount in pack-
ages of a smaller denomination, which being in packages
while the other bills are not, are readily separable, and
answer the purpose intended, which is always to keep the
same amount in each section of the till, except those
used for making change, and to use the money in the
stacks, which facilitates counting after the day's work is
over.
In New York City, promptly at ten o'clock, the tellers'
windows are opened for the transaction of business, and
I2O PRINCIPLES AND PRACTICE OF FINANCE.
remain open until three, except on Saturday, when they
are closed at twelve.
The day's business now begins. Mr. Smith presents
his check to his own order for $500. The teller examines
the same, and if it is properly endorsed, Mr. Smith
being a well known depositor, keeping a good balance,
the check is paid, the teller handing Mr. Smith a package
previously counted and known to contain that sum. Mr.
Smith must either count the money handed him before
he leaves the window, or accept the teller's count. Next
comes a person who presents Mr. Brown's check for say
$5000 and wants it certified. Mr. Brown has dealt with
the bank a number of years, and his account is known to
the teller to be generally somewhere in the neighborhood
of $6000, but of late his balances have not been so heavy ;
in fact, there is a vague suspicion capable of instant veri-
fication that Mr. Brown's account would only show about
$4000 to this credit, and the National Banking Act under
which this bank is organized prescribes severe penalties,
not only on the bank, but also on the official, for the
over-certification of checks. To certify or not to certify !
He well knows that a refusal to certify will probably be a
serious injury to Mr. Brown's credit, and Mr. Brown's
dealings have always been honorable. He does not at-
tempt to verify his suspicion uncertainty in his case is
preferable ; he certifies the check, and in the rush of
business forgets all about it, and probably never thinks
of it again unless Mr. Brown should fail to make good his
account ; or the teller will say, " I will pay you the
money." The teller is allowed a large discretion in the
matter of certification. The moment a check is certified,
it is charged against the maker. The memory of signa-
tures and faces is even more necessary than a memory of
the depositors' credit balances, as the ledger keepers can
always furnish the latter, while no one, in the rush of
business, but the teller himself, can furnish the former,
METHODS OF BUSINESS OF BANKS. 121
although it is true he may refer to the signature book
for comparison.
In the payment of checks, four considerations should
be ever present. First, is the person presenting the same
entitled to receive the money for which it calls, and unless
he is known to the teller he cannot determine, and if not
known he must be identified by some one who is known.
Many tellers require the person identifying another to
write his name under the endorsement of the person
identified, so as to recall the name of the person by whom
such identification was made. The Second consideration
is whether the signature is genuine ; the Third whether
the drawer's account is good for the amount called for,
and the Fourth whether the first and all intermediate en-
dorsements on the check are correct.
The paying teller must also, as much as is within his
power, examine the checks returned from the Clearing
House for the same reasons that he examines those pre-
sented for payment at his window.
When the day's business is over, the paying teller
makes up a balance sheet, on one side of which is the total
amount paid out, and the amount on hand, which should,
of course, equal the amount of cash with which he started
business that day. He then receives from the other
tellers the amounts paid in to them during the day, for
which he receipts. His final proof is then made up
and handed to the cashier or assistant cashier, and
the money is locked up in the safes or vaults as before
described.
Receiving Teller. The receiving teller (often called
the second teller), as his title implies, receives moneys for
deposit, but as he pays out none, it is not necessary that
he should have the same knowledge of accounts as the
paying teller. It is necessary, however, that he should
have a thorough familiarity with counterfeit money, as it
is to his window the same generally comes. There are
122 PRINCIPLES AND PRACTICE OF FINANCE.
several magazines published which give lists and descrip-
tions of all counterfeits, with which lists the receiving
teller is supposed to be familiar.
Each morning he starts with an empty till, and each
afternoon when the day's business is done turns over the
cash and checks deposited with him to the paying teller
and receives his receipt therefor. He retains the deposit
slips accompanying each deposit, and marks and files the
same for future reference. He should require depositors
to endorse every check deposited, whether to order
or bearer, so that should any check be returned for
want of funds or any other reason, he may by looking at
the endorsement know who deposited it.
Discount Department. As discounts constitute the
principal business and source of income of all banks of
deposit, this department is the most important in the
bank, and is usually under the charge of its principal
officer or officers. It is conducted in much the same way
as the credit department of any large mercantile house,
except that a well managed bank, on account of its dis-
counts being generally larger in amount, should make
more careful inquiry as to the financial condition of the
borrower than is necessary for a business house to do in
regard to the persons to whom it extends credit.
The reports of the principal commercial agencies are
always on hand and almost hourly referred to ; but these
printed reports are seldom taken as conclusive. In a case
where there is any doubt, later reports are asked for from
the office of the agency and generally promptly supplied,
beside which the banks make personal inquiry of the
intending borrower and of each other as to the amount
of paper which the borrower has in the market, etc., and
often require a statement of his exact financial condition,
and any misrepresentation on his part renders him liable
to criminal prosecution.
Naturally, the persons or firms who take up their paper
METHODS OF BUSINESS OF BANKS. 123
promptly become favorably known, and can get their
paper discounted at the lowest market rates.
Nearly all the large firms and persons actually engaged
in business have at times a large amount of paper out,
and some business men assert that- in order to secure loans
either at all or at the lowest rate of discount, it is neces-
sary to keep their paper on the market, as offering it to
banks is termed. Some even go so far as to assert the
necessity of issuing such paper for this purpose, even if
they do not need the money and keep it lying idle in
bank.
Discount Clerk. In all the larger banks the clerk who
has charge of the discounts, i. e., the paper purchased by
the bank, is called the Discount Clerk. Perhaps it would
be well here to explain why these are called discounts.
The reason is the paper is sold to the bank, which becomes
the owner thereof, paying to the seller the amount of the
face of the paper less the interest on the amount actually
paid, which is deducted therefrom and termed a discount.
On the acceptance of a discount the amount of interest
to be deducted is at once taken therefrom and the balance
paid to the seller of the paper.
In the discounting of paper, interest is first charged on
the face amount of the paper and then credited at the
same rate on the amount of the discount, as the discount
not being paid over to the seller of the paper, and he in
the first instance being charged interest on the whole
amount should be credited with interest on that amount
which he does not receive. To illustrate, A presents his
paper for $10,000, having one year to run. B agrees to
discount it at six per cent. The discount on $10,000 at six
per cent, for one year would be $600, so that A would be
actually receiving but $9400 while paying interest on
$10,000. A therefore should be credited with the interest
on the sum of $600 which he does not receive. The
computation would then stand as follows :
124 PRINCIPLES AND PRACTICE OF FINANCE.
Loan $10,000, less 6 per cent, discount $9400
Plus 6 per cent, interest on amount not paid, $600 36
$9436
which would be the sum payable to A.
All paper offered to a bank for discount is first handed
to the discount clerk, by whom it is entered in a book
called the " Offering Book," which, in addition to setting
forth the particulars of the paper offered, often also states
the amount of paper already purchased from the person
offering the same.
After the paper has been accepted it is entered in the
" Dealers' Discount Book," which is so ruled as to provide
columns in which to enter the names of the maker, the
endorser, place of payment, due date, days to run, dis-
count, amount of exchange, and net proceeds. Postings
to the ledger are made direct from this book. The dis-
count clerk also enters paper discounted in books called
" Ticklers." Some banks have domestic ticklers, in which
are entered domestic discounts, and foreign ticklers,
foreign discounts. The tickler is a book used to tickle or
refresh the memory, from which it probably derives its
name. The total footings of the ticklers should agree
with the total of bills discounted.
As both the names of the drawer and the endorser of
each piece of paper offered for discount is set forth not
only in the Offering Book, but also in the Ticklers, by
reference to these books, should it be suspected that two
persons or firms are exchanging paper or endorsing for
each other, that fact could be ascertained.
In some banks, paper offered for discount and accepted
is numbered in red ink and filed in packages. Other
banks, however, will permit no writing of any description
or even the puncturing of the paper by a pin.
It is considered unwise to make paper payable to the
order of the bank, but rather, and the general practice
among business men is, to make it payable to their own
order, and then endorse it.
METHODS OF BUSINESS OF BANKS. 125
The discount clerk is the custodian of and has in his
possession the major part of bills receivable, and each
night he deposits the same in the compartment of the
vault or safe set apart for that purpose. Each morning
they are taken out by himself. Should an officer desire
to inspect a note, the discount clerk is called upon to pro-
duce it, and the same is inspected in his presence, he
being responsible for the safe-keeping of such paper.
As paper for discount is handed him in the first instance,
and after being entered in the Offering Book is presented
to the officer or officers to decide whether it will be ac-
cepted or not, and when a decision has been reached, is
returned to him, if accepted marked " A," to be entered
in the proper books, and if rejected marked " R," to be
returned to the persons offering the same for discount,
naturally persons come into frequent contact with the
discount clerk, in order to receive information as to what
disposition has been made of their offerings.
It is also the duty of the discount clerk to send paper
falling due outside of the city in which his bank is located,
to the bank's correspondent in the city where the same is
payable. This paper is^usually sent for collection, as few
New York banks keep accounts in foreign banks (by
foreign banks are meant any banks outside the city of
New York) ; although it does occasionally happen that
New York banks at times re-discount their paper with
other banks, but more frequently the foreign banks re-
discount in the New York banks, or deposit their paper as
collateral for loans. Discounted paper sent to corre-
spondents for collection is usually transmitted through the
mail, and when information of its payment is received, the
collecting bank, if it does not remit therefor, is debited
with the same and " Bills Discounted " credited. If it
does remit "Cash" is debited and " Bills Discounted"
credited. It is desirable that such paper should be sent
to the correspondent from a fortnight to ten days before
maturity.
126 PRINCIPLES AND PRACTICE OF FINANCE.
Note Teller. In the larger banks where there is a special
teller who attends to the collection and payment of notes,
he is known as the note teller, sometimes called the third
teller. He receives checks certified or uncertified or cash
in payment of notes, of which there are two kinds : first,
the notes which have been discounted by the bank and
the payments for which become a part of the funds of the
bank, the bank having already purchased the same ; and,
second, notes deposited for collection, the payments for
which are credited to the depositors of the same. Should
any notes either for collection or discount not be paid
when presented, the teller hands the same over to the
notary of the bank for presentation to and demand on
the maker, when, if not paid, they are protested. Such
presentation and protest are necessary in order to hold the
endorsers. It is of the utmost importance that the note
teller should make no mistake in the date of presentation
of a note to the drawer, at the place where the note is
made payable, because, should a note be presented a day
after its maturity and the drawer decline or be unable to
pay the same, the endorsers cannot be compelled to
pay it.
Book-keeper. " The book-keeper " is used in contradis-
tinction to the ledger keepers, who are also book-keepers.
He is the person directly responsible for the general books
of the bank, and the other book-keepers and ledger
keepers are immediately under his control.
In no business is it so necessary as in banking that the
books should be kept written up to date, especially the
depositors' accounts, else errors may and probably will
occur which would do great damage to the bank. All
accounts should be posted to date so that the exact con-
dition of each account can be ascertained at the beginning
of each day's business. It is the rule in most banks to
have checks entered up in the Customers' Ledger imme-
diately after payment or certification, and before the
METHODS OF BUSINESS OF BANKS. 1 27
clerks leave the bank for the day to enter up to their re-
spective accounts all deposits. Should any check forming
part of a deposit be returned unpaid the person deposit-
ing the same is debited therewith. Most banks make it
a rule that their depositors shall not draw against that
portion of their deposit consisting of checks the day of
deposit.
The teller and collection and discount clerks have
books which are kept exclusively by them and are only
referred to by the book-keeper to post or prove his books,
which are not books of original entry.
The pass-books are written up by the ledger keepers.
The books should be so kept that a complete statement
of the bank's condition could be furnished within a day,
and all accounts which would influence the Board of Di-
rectors or other officers in the making or rejecting of dis-
counts or loans should be written up to date.
While the ruling of some books in the various banks
may differ in a minor degree, practically the same system
prevails in all large banks. In the smaller banks and the
country banks fewer books are required and used than in
the larger, one book in many instances answering in the
place of two and sometimes three.
In order to keep the books properly written up it is
necessary that the book-keeper should have a sufficient
number of assistants, and that each man should do the
work assigned him systematically and accurately.
Runners. Runners, usually young men, are employed
to present notes, drafts, and other promises to pay ; notes
are presented to the makers ; if they are not .in, a notice is
left, a printed slip with which the runner is provided, stat-
ing that the bank holds such and such a note payable to
the order of for the amount for which it was drawn,
and giving the last day when payment for the same will
be received. Drafts, of course, are presented to the per-
son on whom drawn, if on sight for payment, and if time
128 PRINCIPLES AND PRACTICE OF FINANCE.
drafts for acceptance. In case of the absence of the per-
son on whom they are drawn a like notice is left.
In regard to notes presented on the last day of payment
it is important that the runner should report promptly to
the note teller a failure to collect, so that the paper may
be placed in the hands of the notary to make the necessary
presentation, and, in the event of non-payment, protest
and notice to the endorsers. Generally notice is given
the maker several days before maturity, after which notice
the maker is expected to call at the bank and pay the
same by the morning of maturity ; if he does not do
so the bank again presents the note. (For presentation,
protest, and notice to endorsers see " Notary.")
The bank is in charge of the porter from the time the
watchman who has care of the bank at night leaves in
the morning till the clerks arrive and the books are put in
their proper places, and again from the time the clerks
leave till the watchman comes on duty.
How to Open a Bank Account. The first thing is
to have the necessary amount of money with which to
open it. Many of the New York banks of deposit refuse
to receive accounts averaging less than a thousand dollars,
and there is one well-known bank in New York which will
not receive an account which averages less than twenty-
five thousand dollars.
The next thing to do is to secure an introduction to the
cashier, preferably by a depositor of the bank. You are
then questioned as to the amount of balance you intend
to keep on hand, and what accommodation you expect
from the bank.
As the various banks have different rules in regard to
the amount of deposit which, as they term it, " entitles
a depositor to accommodation," none can be here stated.
The larger and more prosperous a bank, the less anxious
it is generally to secure new accounts, and the more inde-
pendent in the matter of accommodation, so that it is not
METHODS OF BUSINESS OF BANKS. 129
always best to keep your account in a large bank, if that
account is a comparatively small one, and it is probable
that accommodation will be needed.
The preliminaries being satisfactorily arranged, you are
introduced to the receiving teller, who receives your de-
posit and gives you credit for the same in a book, which
is handed you, termed the " pass book," on one side of
which are credited the amounts deposited, and on the other,
when your book is sent in to be written up, /. *?., balanced
with the bank's books, is debited with the checks drawn
by you against those credits.
You are next introduced to the paying teller, and re-
quested to write your signature in a book kept for that
purpose in the bank and called the " Signature Book," and
you are given a check book. The cashier, if you are of
sufficient importance, accompanies you to the door and
you are politely bowed out, and you have opened your
bank account, and your hard-earned wealth is in the pos-
session of a soulless corporation which knows no favor, or
should know none.
Bank, pass books should be handed in, at least once a
month, to the proper ledger keeper, to be written up, and,
on the return of your checks and book, the checks and
entries in the pass book ought to be carefully compared
with the stubs in the check book, and, if the account is
found correct, the checks should be done up in a package
and marked checks on the bank on which they are drawn,
from to and put away in a safe place, as
generally an endorsed check is the best obtainable evi-
dence of a payment.
If any discrepancy is found to exist between the bank's
balance and the balance the depositor thinks is due him,
the bank should be immediately notified and the pass book
taken back for comparison.
Course of a Deposit. As deposits are divided into
two kinds, checks and currency, we will have to con-
130 PRINCIPLES AND PRACTICE OF FINANCE.
sider the same separately, as they do not follow the same
course.
First : In regard to currency, the amount of which
must be stated on the deposit slip of the depositor, who is
provided therewith by the bank. This currency is paid in
at the window of the receiving teller and by him credited,
together with the rest of the deposit, to the person mak-
ing the same, first on the pass book, then on the teller's
book, and finally by the ledger keeper on the ledger, and
is placed in the receiving teller's till, mixed with the funds
of the bank, of which it becomes a part, and its identity is
lost.
As to checks. First we will consider those which are
drawn upon the bank in which the depositor has his ac-
count. These checks, as in the case of currency, are set
out on the deposit slips and are handed to the receiving
teller, who credits the depositor with the amount thereof
as before described. The total amount of the deposit of
which such checks form a part is placed in the depositor's
account to his credit. The checks are passed to the ledger
keeper in charge of the ledger in which the drawers' ac-
counts are kept and are there debited to said accounts.
At the end of a given period, as above stated, they are re-
turned to the drawers when their pass books are balanced.
In regard to checks drawn on other banks, the credit is
made to the depositor depositing the same, in the manner
above described, but the checks, instead of going through
the books of the bank, are assorted by the assistant teller
and placed in numbered boxes, the numbers of which cor-
respond to the numbers assigned said banks at the Clearing
House.
After the close of business hours the checks on each
bank are done up in a separate package and the total
amount, together with the bank's name, is written there-
on. The total amount of checks on all the Clearing-House
banks, or those clearing through them, are then stated on
METHODS OF BUSINESS OF BANKS. 131
the Clearing-House sheet, which can, of course, only show
their debits, as their holdings against this bank are not
yet known. The next morning at ten o'clock the clear-
ing clerks of the various banks meet at the Clearing
House, and after presenting their bank's Clearing-House
sheet to the Clearing House, exchange the checks of their
respective banks, as is described in the article on the
Clearing House.
The clerk of the Clearing House then gives to the
clerk of each bank a statement, showing the net total
either due to or owing by his bank from all the other
banks. In case the bank is a debtor this amount has to be
paid in by one o'clock ; and in case it is a creditor the
amount due is paid over to it by two oclock.
The clerks after this exchange of checks return to their
respective banks and the different checks are charged up
to the various drawers thereof, and finally returned to
them as before explained.
CHAPTER V.
New York Clearing House.
LOCATED at present in the modest four-story brown-
stone building, at the corner of Pine and Nassau Streets,
is the " New York Clearing House Association," formed
by the principal banks of this city, for the purpose of
effecting clearances or exchanges of checks, drafts, etc.,
between each other. The association is now erecting a
new home on Cedar Street.
This association was formed in 1853 with a membership
of fifty-five banks, whose capital aggregated $47,000,000.
Its present membership consists of sixty-six banks with an
aggregate capital of $62,622,700 and a surplus of $71,046,-
800. While this increase has not been as rapid as might
have been supposed and perhaps as has taken place in
some other directions, it should be borne in mind that the
strength of a bank or a banking institution does not
entirely rest upon the amount of its capital nor even of its
surplus, and when it is considered that this association
was organized by the fifty-five strongest banks in the city,
and it is remembered that these banks, with but few excep-
tions, still retain that leading position, and that only
institutions of the very highest character are admitted to
membership, the wisdom and conservatism displayed in
thus restricting the membership will be appreciated. It
may be said that in addition to the Federal supervision in
the case of national banks, and the State supervision in
NEW YORK CLEARING HOUSE. 133
the case of State banks and trust companies, all members
of this association are subject to the almost daily super-
vision of committees appointed by, or officers of, the
Clearing House.
The conditions of membership are the payment of an
initiation fee ranging from $5000 for banks of a capital
of half a million to $7500 for banks with a capital of five
millions. Further, each member irrespective of capital
pays yearly $200, besides which there is a charge varying
from 35 to 40 cents on each million dollars cleared.
In addition to the examination spoken of, each member
must file weekly a statement of loans, specie, legal-tender
circulation, deposits, etc.
The officers and committees of the Clearing House
Association are chosen from the banks by which it is
formed. The Assistant Treasurer of the United States,
owing to the importance of the clearings of the Sub-
Treasury, is a member by courtesy, as is said by way of
being polite, but largely for the convenience of the banks
and to avoid individual presentation of claims against the
Sub-Treasury.
This association is designed to provide a place and
method by which the risk, expense, and loss of time
necessary in the presentation of the demands of one bank
against each of the other banks, members of this associa-
tion, and of the claims of each of those other banks in
turn against it and against each other, may be avoided.
The method by which this is accomplished in brief is by
the presentation by a bank of its entire demands on all
other banks to the Clearing House, with which the bank
is credited. The Clearing House receives from all other
banks, members, the claims against said bank, and if the
claims of said bank are in excess of the claims against it,
then the Clearing House pays to it such excess ; in case
the demands against such bank are in excess of its claims
against other banks, then the bank must pay the excess
134 PRINCIPLES AND PRACTICE OF FINANCE.
to the Clearing House, the Clearing House distributing
such excess among the banks to which it may be due.
In England, as early as the latter part of the eighteenth
century, the necessity of such institutions was recognized,
and in fact in several of the cities of England clearing
house associations were then established.
The great utility of such an institution need only be
mentioned to commend itself immediately to any one
acquainted with finance, but perhaps an illustration would
not be amiss. Not long since one of the larger members
of this association presented to it demands against the
other members of the association amounting to about
$4,000,000, and these other members presented to the
association demands against it only fifty cents short of the
amount of its claims against them. Only the balance
between these two amounts was paid over, the two
principal amounts being set off against each other ; a
transaction of $8,000,000 was thus accomplished by the
set off of credit against debit and the payment of the
balance of fifty cents.
The machinery by which these exchanges or clearances
are accomplished is as follows : The manager and his
staff are in their respective positions on the platform at
IO A.M. This platform is situated at the western end of
the large room on the third floor, in which room are as-
sembled at the respective desks allotted to them the
" delivery and " settling cferks " of the various members
of the association. Each delivery clerk brings the de-
mands held by his bank against the other members, done
up in separate parcels, this work having been accom-
plished the day before by the assistant tellers in his bank.
The settling clerks now present to the manager of the
association a memorandum giving the amount of the
total demands against the other members, with which
amounts the bank represented by said settling clerk is
credited on a proof sheet kept by the " Proof Clerk."
NEW YORK CLEARING HOUSE. 135
The clerks now go to the respective desks allotted to
their banks on one of the three rows of desks located in
this room, and the actual clearances begin as follows :
The delivery clerk at desk No. I delivers to the settling
clerk of No. 2 all demands of No. I against No. 2, obtain-
ing a receipt therefor. At the same time No. 2*s delivery
clerk has delivered to No. 3's settling clerk the demands
of No. 2 against No. 3, upon his receipt. This mode of
settling prevails throughout the room until each member
has presented his demands against every other bank and
every other member's demands have been presented
against it, which usually consumes about twenty minutes.
After these settlements have been effected the settling
clerks send the result of the demands against their re-
spective banks on slips to the proof clerk by whom
they are entered to the debit of such bank. The proof
clerk now adds up the total debits and credits, which
should, of course, agree, because what is a credit of one
member is a debit of another, and vice versa. In half an
hour more the differences between member and member
are announced. Those members whose credits are in ex-
cess of their debits are termed creditor banks and those
whose debits are in excess of the credits are termed debtor
banks. The creditor banks collect, as soon as practicable,
after the settlement of the debtor banks, the amounts due
them, which amounts, of course, have to be paid in by
the debtor banks, and which amounts these debtor banks
are required to pay in cash, not later than half-past one.
To give an accurate idea of the importance of this
Clearing-House Association, it may be interesting to note
that while the clearings of the New York Clearing House
for the year ending December 31, 1894, amounted to
$24,387,807,019.92, although for the last ten years the
average annual clearances have been $35,000,000,000, those
of all the other clearing houses outside of New York
amounted to less than $21,000,000,000. It is estimated
136 PRINCIPLES AND PRACTICE OF FINANCE.
that the clearings of the London Clearing House, the next
most important to the New York Clearing House, amount
annually to about $20,000,000,000.
But not only has the Clearing House been useful in the
discharge of its ordinary business of effecting clearances,
but on account of the respect and confidence in its
methods and management, inspired by its conservatism,
it has been able at least three times within the last twenty
years to come to the aid of the banks, and incidentally to
that of the public, and to either avert or greatly amelio-
rate the severity of a money panic by the issuance of
certificates against collateral acceptable to a committee
appointed by it. These certificates were issued to the
extent of 75 P er cent, of the usual market values of the
securities held by such committee as collateral to their
issue, and were used in the settlement of the daily bal-
ances between its members, and, of course, released just
that amount of money into circulation and to that extent
relieved the stringency of the money market. Such cer-
tificates were issued in 1890 to the extent of $15,000,000,
about the time of the embarrassment of the Barings,
when the money markets of the whole world were more
or less convulsed. The denominations of these certificates
were five, ten, and twenty thousand dollars. They were
all taken up within five months after their issue. Another
issue of certificates to the amount of $41,000,000 was
made on June 15, 1893, which was all retired by Novem-
ber 1st of the same year. The following is a copy of one
of these certificates :
NEW YORK CLEARING HOUSE.
137
W
I I
'-M O
<u ^
oj
6
No,
$5000.
LOAN COMMITTEE OF THE NEW YORK
CLEARING-HOUSE ASSOCIATION.
New York,
This certifies that the ............ has deposited
with this committee securities in accordance with
the proceedings of a meeting of the Association,
held November nth, 1890, upon which this certifi-
cate is issued. This certificate will be received in
payment of balances at the Clearing House for the
sum of Five Thousand Dollars, from any member
of the Clearing-House Association.
On the surrender of this certificate
by the depositing bank above
named, the committee will endorse
the amount as a payment on the
obligation of said bank held by
them, and will surrender a propor-
tionate share of the collateral se-
curities held therefor.
$5000.
The government of this institution is entrusted to its
principal committee, the Clearing-House Committee,
which is composed of members elected by the various
banks of the association. This committee has the exe-
cutive management of all matters pertaining to the asso-
ciation. The next most important committees are the
Arbitration, the Conference, and the Admission Commit-
tees. The executive management of the Clearing House
is in charge of Mr. William Sherer, the present able
manager, and a staff of assistants.
CHAPTER VI.
Savings Banks.
SAVINGS banks, so named from the fact that they are
designed to be the depository of savings, rather than of
general accounts subject to immediate check.
These banks, with the exception of those in the District
of Columbia (which are necessarily organized under the
Federal Laws), are organized and exist under the laws of
the States in which they are located.
As these banks are the custodians of the surplus earn-
ings above the immediate necessities of their depositors
and often represent their entire available assets, the laws
of this State, in particular, have thrown around them
numerous safeguards, not only for the protection of the
depositors, but of the institutions themselves.
The law is so exhaustive in its treatment of the class
and kind of security on which savings banks may make
loans or invest their moneys, that it is impossible to give
more than a brief resume.
In the matter of the regulations under which moneys
are received, interest paid or credited to the depositors'
accounts, loans effected, etc., the constitution and by-laws
of the institution often govern in the practicable workings,
but the constitution and by-laws are always subject to the
rules laid down in the statute law.
Article III. of the Banking Laws of the State of New
York pertains to savings banks and prescribes (Section
100) that thirteen or more persons, two thirds of whom
138
SAVINGS BANKS. 139
shall be residents of the county where the proposed bank
shall be located, may become a savings bank by execut-
ing a certificate in duplicate, one copy of which shall be
filed in the office of the Clerk of such County, and the
other in the office of the Superintendent of Banks within
sixty days after its acknowledgment, setting forth :
1. The name by which the corporation shall be known.
2. The place where its business is to be transacted,
designating the particular city, village, or town, and if in a
city, the ward therein.
3. The name, residence, and, if in a city, the street and
number, occupation and post-office address of each mem-
ber of the corporation.
4. A declaration that each member of the corporation
will accept the responsibilities and faithfully discharge the
duties of a trustee in such corporation when authorized
according to the provisions of law.
It is necessary that a notice of intention to organize
shall be published at least once a week for four weeks
previous to filing such certificate in at least one news-
paper of the largest circulation published in the city,
village, or town in which such bank is proposed to be
located, or if no newspaper is published therein, then
some newspaper published in the county, or if none is
published in the county, then in a newspaper published
in the adjoining county.
This notice shall specify the names of the proposed in-
corporators, also the name of the bank and the location of
the same. A copy of such notice shall be sent to every
savings bank doing business in such county at least fifteen
days before the filing thereof.
If the above regulations have not been complied with
to the satisfaction of the Superintendent, he shall refuse
to file such certificate until it shall be amended in con-
formity with the provisions of the law and the regulations
thereof complied with, but if such regulations have been
140 PRINCIPLES AND PRACTICE OF FINANCE.
complied with and the certificate is accompanied with
satisfactory evidence of the proper publication and service
in good faith of such notice, he shall forthwith endorse
the same over his official signature " Filed for Examina-
tion " with the date of such endorsement.
The Superintendent shall thereupon ascertain from the
best sources of information at his command whether
greater convenience of access will be afforded depositors
by opening a savings bank in the place designated,
whether the population in the neighborhood designated
affords a reasonable promise of adequate support to the
enterprise, and whether the responsibility of the persons
named in the certificate is such as to command the confi-
dence of the community in which such savings bank is
proposed to be located.
If the Superintendent shall be satisfied that the organi-
zation of the savings bank will be a public benefit, he shall,
within sixty days after the same has been filed by him
for examination, issue a certificate to the persons named
in such certificate authorizing them to open an office for
the deposit of savings as designated in the certificate.
Such certificate shall be filed in the office of the County
Clerk of the County in which the savings bank is to be
located ; and the Superintendent of Banking shall also file
a duplicate of such certificate in his own office.
If the Superintendent shall not be satisfied that the
establishment of a savings bank is expedient and desira-
ble, he shall, within sixty days after the filing thereof,
give notice to said County Clerk that he refuses to issue
a certificate, which notice shall forthwith be filed by the
County Clerk with the certificate of incorporation of such
savings bank.
Upon the filing of any certificate of authorization the
persons named therein and their successors shall there-
upon become and be a corporation vested with all the
powers and charged with all the liabilities conferred and
SAVINGS BANKS. 141
imposed by law upon savings banks, and shall have power
to receive on deposit money and invest the same and de-
clare credit and pay dividends thereon and transact the
business of a savings bank. They possess, however, only
such powers, rights, and privileges as are conferred by the
banking law, notwithstanding anything to the contrary in
their respective charters. The same thing may be said as
to their duties and liabilities.
After the receipt of such certificate of authorization the
bank must begin business within a year, but the Superin-
tendent may, for reasons satisfactory to himself, extend
the time not exceeding one year.
The Board of Trustees consists of not less than thirteen,
and to it the entire management and control is entrusted ;
they may elect a President and two Vice-Presidents, and
such other officers as they deem fit. The persons named
in the certificate of authorization are the first trustees.
A vacancy in the Board is filled by the Board as soon as
practicable at a regular meeting after the vacancy occurs.
Only residents of the State are eligible to election as trus-
tees, and removal from the State by a trustee acts as a
vacation of office.
The Board of Trustees may, from time to time, make
such by-laws, rules, and regulations, not inconsistent
with law, as they may think proper for the election of
officers, for prescribing their respective powers and duties,
the manner of discharging the same, for the appointment
and duties of committees, and generally for transacting,
managing, and directing the affairs of the corporation, a
copy of which should be transmitted to the Superintendent
of Banks, who should also be notified of any amendment
or change therein.
Regular meetings of trustees, seven being necessary to
constitute a quorum, shall be held as often as once a month
for the purpose of receiving the reports of their officers
and committees and for the transaction of other business.
142 PRINCIPLES AND PRACTICE OF FINANCE.
The statute provides that the office of trustee becomes
vacant whenever its incumbent becomes a trustee, officer,
clerk, or employee of any other savings bank, or when he
shall borrow directly or indirectly, any of the funds of
the savings bank in which he is a trustee, or become a
surety or guarantor for any money borrowed of or a loan
made by such savings bank, or when he shall fail to attend
the regular meetings of the Board, or perform any of the
duties devolved upon him as such trustee, for six succes-
sive months, without having been previously excused by
the Board for such failure ; but the trustee vacating his
office by failure to attend meetings, or to discharge his
duties, may, in the discretion of the Board, be eligible to
re-election.
The trustees shall have power to require the officers,
clerks, and agents of such bank to furnish security for the
faithful performance of their duties.
No trustee of any such corporation can have any interest
in the gains or profits thereof, nor as such receive any
payment for his services, except that such of the trustees
as are officers of the corporation or who act as the com-
mittee to examine vouchers and assets may receive such
compensation as a majority of the Board deem reasonable.
No trustee or officer of any such corporation shall for
himself or as an agent or partner of others borrow any of
its funds on deposits, or in any manner use the same
except to make such current and necessary payments as
are authorized by the Board of Trustees ; nor shall any
trustee or officer of any such corporation become an
endorser or surety, or become in any manner an obligor
for moneys loaned by or borrowed of such corporation.
The sums deposited with any savings bank, and any
dividends or interest credited thereto, shall be repaid to
the depositors respectively, or to their legal representa-
tives, after demand and under such regulations as the
Board of Trustees may prescribe. Such regulations shall
SAVINGS BANKS. 143
be posted in the room where the business of the corpora-
tion is transacted, and printed in the pass-books furnished
by it, and constitute evidence, between the corporation
and the depositors holding the same, of the terms upon
which the deposits therein acknowledged are made.
Every such corporation may limit the aggregate amount
which any one person or society may deposit to such sum
as it may deem expedient to receive, and may, in its dis-
cretion, refuse to receive a deposit, and may also at any
time return all or any part of any deposit. The aggregate
amount of deposits to the credit of any individual at any
time may not exceed three thousand dollars, exclusive of
deposits arising from judicial sales or trust funds or inter-
est ; and to the credit of any society or corporation at any
time, shall not exceed five thousand dollars, exclusive of
accrued interest, unless such deposit was made prior to
May 17, 1875, or pursuant to an order of a court of record.
Any deposit made by or in the name of any minor,
shall be held for the exclusive right and benefit of such
depositor, and free from the control or lien of all other
persons, except creditors, and shall be paid to the person
in whose name the deposit shall have been made, and the
receipt or acquittance of such minor shall be a valid and
sufficient release and discharge for such deposit or any
part thereof to the corporation.
-A deposit made by a person in trust for another shall,
in the event of the death of the trustee, be paid to the
person for whom the deposit was made.
" The trustees of any savings bank may invest the money
deposited therein and the income derived therefrom only as
follows :
" i. In the stocks or bonds, or interest-bearing notes or
obligations of the United States, or those for which the faith
of the United States is pledged to provide for the payment of
the interest and principal, including the bonds of the District
of Columbia.
144 PRINCIPLES AND PRACTICE OF FINANCE.
" 2. In the stocks or bonds or interest-bearing obligations of
this State, issued pursuant to the authority of any law of the
State.
" 3. In the stocks or bonds or interest-bearing obligations of
any State of the United States which has not within ten years
previous to making such investments by such corporations
defaulted in the payment of any part of either principal or
interest of any debt authorized by the Legislature of any such
State to be contracted.
"4. In the stocks or bonds of any city, county, town, or
village, school district bonds, and union free school district
bonds, issued for school purposes, or in the interest-bearing
obligations of any city or county of this State, issued pursuant
to the authority of any law of the State for the payment of
which the faith and credit of the municipality issuing them are
pledged.
"5. In bonds and mortgages on unencumbered real prop-
erty situated in this State, worth at least twice the amount
loaned thereon. Not more than sixty-five per cent, of the
whole amount on deposit shall be so loaned or invested. If
the loan is on unimproved real property, the amount loaned
thereon shall not be more than forty per cent, of its actual
value. No investment in any bond and mortgage shall be
made by any savings bank, except upon a report of a commit-
tee of its trustees charged with the duty of investigating the
same, who shall certify to the value of the premises mortgaged
or to be mortgaged according to their best judgment, and such
report shall be filed and preserved among the records of the
corporation.
" 6. In real property subject to the provisions of the next
section."
" Every such corporation may purchase, hold, or convey
real property only as follows :
" i. A plot whereon is erected or may be erected a building
or buildings requisite for the convenient transaction of its
business, and from portions of which, not required for its own
use, a revenue may be derived. The cost of such building or
buildings and lot shall in no case exceed fifty percentum of
SAVINGS BANKS. 145
the net surplus of the corporation, except by written permis-
sion of the Superintendent of Banks.
" 2. Such as shall have been purchased by it at sales upon
the foreclosure of mortgages owned by it, or on judgments or
decrees obtained or rendered for debts due on it, or in settle-
ments effected to secure such debts. All such real property
shall be sold by such corporation within five years after the
same shall be vested in it, unless, upon application by the
Board of Trustees, the Superintendent shall extend the time
within which such sale shall be made.
" Every such corporation may, with the approval in writing
and under the seal of the Superintendent of Banks, change its
location within the limits of any city or town wherein it may
be established. In effecting such change of location such cor-
poration owning a banking house and lot, may purchase such
additional plot under the provisions of subdivision one, of this
section, as the corporation may require ; and such banking
house and lot previously owned and occupied shall be sold as
provided in this subdivision concerning real property acquired
in satisfaction of debts.
" For the purpose of meeting current payments and expenses
in excess of the receipts, there may be kept an available fund
not exceeding ten percentum of the whole amount of deposits
with such corporation. Such available fund may be loaned
upon pledge of securities, but not in excess of ninety per-
centum of the cash market value of such securities so pledged.
" Should any of such securities depreciate in value, after mak-
ing any loan thereon, the trustees shall require the immediate
payment of such loan or additional security therefor, so that
the amount loaned shall at no time exceed ninety percentum
of the market value of the securities pledged for the same."
Such savings bank may also deposit temporarily in the
banks or trust companies authorized by statute, the ex-
cess of current daily receipts over the payments, until the
same can be judiciously invested in the securities required
by law. Should it appear to the Superintendent of Banks
that the trustees of any savings bank are violating the
146 PRINCIPLES AND PRACTICE OF FINANCE.
spirit and intent of the statute in this respect by keeping
permanently uninvested all, or an undue proportion of
the moneys received by them, he may report the facts to
the Attorney-General, who shall proceed against such cor-
poration in the same manner as against Banks of Deposit.
The trustees of any savings bank must not loan the
moneys deposited with them upon any other personal
securities whatever, and in all cases of loans upon real
property, a sufficient bond secured by a mortgage thereon
must be required of the owner.
Whenever money is loaned upon improved property,
such property must be insured by the borrower, and the
policy of insurance thereof assigned to the savings bank,
and in case the borrower neglects to insure or keep in-
sured such improved property, the Superintendent of
Banks may insure the same at the cost and expense of
the borrower.
No savings bank should directly or indirectly deal or trade
in real property in any other case or for any other purpose
than is authorized by this article, or deal or trade in any
goods, wares, merchandise or commodities whatever, except
such personal property as may be necessary in the transaction
of its business ; nor shall any savings bank or any officer
thereof in his regular attendance upon the business of the
bank, in any manner buy or sell exchange gold or silver, or
collect or protest promissory notes or time bills of exchange.
Savings banks may, however, sell gold or silver received in
payment of interest or principal of obligations owned by them
or from depositors in the regular course of business, and may
pay regular depositors, when requested by them, by draft
upon deposits to the credit of the bank in the city of New
York, and charge current rates of exchange for such drafts.
No savings bank may issue any certificate of deposit payable
either on demand or at a fixed day, or pay any interest except
regular dividends upon any deposits or balances, or pay any
interest, deposit, or any check drawn upon itself by a deposi-
SA VINGS BANKS. 147
tor, unless the pass-book of the depositor be produced, and
the proper entry be made therein at the time of the trans-
action.
The Board of Trustees may, by their by-laws, provide for
making payments in case of loss of pass-book, or other excep-
tional cases where the pass-book cannot be produced without
loss or serious inconvenience to depositors ; but the right to
make such payments ceases when so directed by the Superin-
tendent of Banks, upon his being satisfied that such right is
being improperly exercised by any savings bank ; payments,
however, may be made upon the judgment or order of a court
or the power of attorney of a depositor.
The trustees of every such corporation may regulate the
rate of interest or dividends not to exceed five per centum per
annum upon the deposits therewith, in such a manner that
depositors shall receive, as nearly as may be, all the profits of
such corporation, after deducting necessary expenses and
reserving such amounts as the trustees may deem expedient
as a surplus fund for the security of the depositors, which, to
the amount of fifteen per centum of its deposits, the trustees
of any such corporation may gradually accumulate and hold, to
meet any contingency or loss in its business from the deprecia-
tion of its securities or otherwise. The trustees usually
classify their depositors according to the character, amount,
and duration of their dealings with the corporation, and regu-
late the interest or dividends allowed in such manner that
each depositor shall receive the same ratable portion of
interest or dividends as all others of his class.
The trustees of any such corporation should not declare or
allow interest on any deposit for a longer period than the
same has been deposited, except that deposits made not later
than the tenth day of the month commencing any semi-annual
interest period, or the third day of any month, or withdrawn
upon one of the last three days of the month ending any
quarterly or semi-annual interest period, may have interest
declared upon them for the whole of the period or month
when so deposited or withdrawn..
No dividends or interest should be declared, credited, or
148 PRINCIPLES AND PRACTICE OF FINANCE.
paid, except by the authority of a vote of the Board of
Trustees, duly entered upon their minute's, whereon should be
recorded the ayes and nays upon each vote ; but accounts
closed between dividend periods may be credited with interest
at the rate of the last dividend, computing from the last divi-
dend period to the date when closed, if the by-laws so provide.
Whenever any interest or dividend shall be declared and
credited in excess of the interest or profits earned and appear-
ing to the credit of the corporation, the trustees voting for
such dividend are jointly and severally liable to the corpora-
tion for the amount of such excess so declared and credited.
The trustees of any such corporation whose surplus amounts
to fifteen per centum of its deposits, at least once in three
years, shall divide equitably the accumulation beyond such
authorized surplus as an extra dividend to depositors, in excess
of the regular dividends authorized.
A notice posted conspicuously in a bank of a change in the
rate of interest shall be equivalent to a personal notice.
In determining the per cent, of surplus held by any savings
bank, its interest-paying stocks and bonds should not be
estimated above their par value or above their market value if
below par. Its bonds and mortgages on which there are no
arrears of interest for a longer period than six months are to
be estimated at their face, and its real property at not above
cost. The Superintendent of Banks determines the valuation
of such stocks or bonds, or bonds and mortgages, as are in
arrears of interest for six months or more, and of all other
investments, from the best information he can obtain, and he
may change the valuation thereof from time to time as he may
obtain other and further information.
The trustees of every savings bank, by a committee of not
less than three of their number, on or before the first days of
January and July in each year, must thoroughly examine the
books, vouchers, and assets of such savings bank and its affairs
generally. The statement or schedule of assets and liabilities
reported to the Superintendent of Banks for the first of Janu-
ary and July in each year should be based upon such exami-
nation, and shall be verified by the oath of a majority of the
SAVINGS BANKS. 149
trustees making it ; and the trustees of any savings bank may
require such examination at such other times as they shall
prescribe. The trustees must, as often as once in each six
months during each year, cause to be taken an accurate balance
of their depositors' ledgers, and in their semi-annual report to
the Superintendent they must state the fact that such balance
has been taken.
All the property of any bank or trust company which be-
comes insolvent, shall, after providing for the payment of its
circulating notes, be applied to the payment in full of any
sum or sums of money deposited therewith by any savings
bank.
The Superintendent shall receive the moneys so deposited
with him by the trustees of any solvent savings bank voluntarily
closing its business, and all moneys which may be deposited
with him by the receivers of insolvent savings banks pursuant
to the provisions of any law or the order of any court, and
shall receive a receipt therefor, and forthwith deposit the
same in some solvent savings bank or savings banks to the
credit of the Superintendent of Banks in his name of office, in
trust for the depositors and creditors of the closed savings
bank from which they were received. The Superintendent
shall report to the Legislature annually in his report the names
of such closed savings banks and the sums of unclaimed and
unpaid deposits to the credit of each of them respectively.
The Superintendent may pay over to the persons respectively
entitled thereto the moneys so held by him upon being fur-
nished with satisfactory evidence of their right to the same.
In cases of doubt or of conflicting claims, he may require an
order of the Supreme Court authorizing and directing the pay-
ment thereof. He may apply the interest earned by the moneys
so held by him towards defraying the expenses in the payment
and distribution of such unclaimed dividends to the depositors
and creditors entitled to receive the same, and he shall include,
in his annual report to the Legislature, a statement of the
amount of interest earned by such unclaimed dividends.
CHAPTER VII.
Trust Companies.
THE important field covered by Trust Companies, to-
gether with the fact of their comparatively recent growth,
warrants and, in fact, necessitates a rather lengthy treat-
ment of the subject.
By many it is erroneously supposed that these com-
panies are organized to compete for business with banks,
both state and national. A careful review, however, of
the powers and privileges granted banks, both national
and state, including savings banks, must convince the
thoughtful reader that such is not the case, and while it
may appear at first glance that many small accounts which
are now kept in trust companies would otherwise be de-
posited in savings banks, it must be borne in mind that
the restrictions and regulations of savings banks in regard
to the drawing out of money, it being necessary for the
depositor not only to make out a check but to present his
pass-book in person, or hand the pass-book to the person
presenting the check, are so irksome, that many of these
accounts cannot be conveniently and would not be kept
therein. In fact, about the only thing in common be-
tween a trust company and a savings bank is that both
are required by law to pay a certain per cent, of interest
upon deposits. The trust company, as hereafter stated,
being compelled to pay two per cent., while savings banks
are prohibited from allowing a higher rate than five.
150
TRUST COMPANIES. 151
In order to point out more clearly the difference between
the business conducted by a trust company and that con-
ducted by an ordinary bank of deposit, it will necessitate
a brief statement of the business conducted by such banks,
which is given more fully in other portions of this work,
particularly those chapters referring to banks of deposit.
Succinctly stated, the business of a bank of deposit
(omitting now all reference to the issuing of circulating
notes) is to receive money on deposit from its depositors,
to whom it pays no interest whatever, but in lieu thereof
and as compensation for the use of such moneys (only 25
per cent, of which national banks in the reserve cities are
required to keep on hand to meet the checks of its de-
positors, and state banks are only required to keep 15 per
cent. ; the balance of which deposits are loaned to various
borrowers), it agrees to discount acceptable commercial
paper offered by such depositors in a recognized propor-
tion to the amount of such deposits. In order to be in a
position to do this it follows that its loans must be of com-
paratively small amounts on rapidly maturing obligations ;
this, of course, bars out loans on real estate or on settled
securities. National banks are prohibited by law from
making loans on real estate, and are only permitted to re-
ceive real estate as additional security for loans previously
made, and while State banks of deposit are not prohibited
by the State law from so doing, nevertheless, as a matter
of good banking, they also carefully avoid loans of this
character. In other words, the policy of a bank is first to
secure large deposits on which they have to pay no inter-
est, and to make a great number of small loans on short-
time paper ; while that of a trust company is to make
loans large in amount running for a considerable time, and
to receive only deposits which will not be immediately
drawn out or seriously diminished, but which they must
be able to loan at a higher rate than two per cent., which
the law requires them to pay the depositor.
I$2 PRINCIPLES AND PRACTICE OF FINANCE.
In the complex life of highly civilized and wealthy
communities, this leaves a field open, which field, among
others, trust companies are designed to cover.
The class of persons who constitute their depositors
are salaried and professional men, who deposit moneys
for which they have no immediate or shortly anticipated
need ; business men accumulating a fund for some specific
purpose or their individual profits; married women with
separate estates, who deposit the principal, drawing, as a
rule, only the interest thereon ; administrators, executors,
trustees, and committees, whose deposits are generally
permanent, and not likely to fluctuate greatly in amount ;
assignees and receivers, whose deposits, though for a
shorter time, are of practically a uniform amount while
they last.
From the comparatively stationary and uniform char-
acter of its deposits, not to speak of the amount in its
hands as executor, administrator, assignee, receiver, or
committee, and over which it has absolute control, trust
companies are in a position, and find it advantageous, to
make loans of larger amount and longer duration than do
banks ; and as real estate is the one thing of greatest and
most staple value in a community, it naturally forms the
most desirable thing on which to make such loans.
But before money can be loaned or invested to advan-
tage, either in real estate or in stocks and bonds, it is
necessary that a sufficient amount should be accumulated.
It is in the collection and accumulation of these amounts
which, until they have arrived at a sufficiently large sum,
are deposited daily by the trust companies in banks, and
on which daily balances the banks allow them interest for
the use of such money, that the trust company becomes,
not a competitor, but a powerful auxiliary to banks of
deposit ; gathering in and bringing together, as they do,
accounts which would be of no value to the banks, but
which, when consolidated into one account and deposited
by a trust company, become of great value.
TRUST COMPANIES. 153
Thus far we have spoken of trust companies almost ex-
clusively in their relation to banks. It must be borne in
mind that this is not the chief object, but merely an inci-
dent growing out of their organization. We will now
consider the real object of their formation, which is :
To act in a fiduciary capacity as fiscal agent, trustee,
executor, administrator, assignee, receiver, or committee
either for individuals or corporations. Heretofore these
various offices and the duties pertaining to them have
been discharged by individuals.
The advantages of entrusting the performance of such
important duties to a corporation whose life is perpetual
during its corporate existence, which in this State is fifty
years, and whose charter can be renewed, which is never
sick or incapacitated for the discharge of its duties, whose
management is confided to some of the most successful,
wealthy, and reputable business and professional men in
the community, whose combined experience and knowl-
edge of affairs must be greater than that of even the most
astute and well-informed business man, besides which they
devote an amount of time and labor to the study and
investigation of property and business affairs, the value
of real and personal property, which it would be obviously
impossible for one person to do, and their capital surplus
and assets, which are invested not alone in one industry,
but in many, and which are liable for the faithful perform-
ance of their duties, furnish greater security than those of
an individual trustee. That the appointment of such a
company in any of the above capacities is more desirable
than that of an individual, whose time is necessarily
largely employed in his own affairs, and whose tenure of
life and capacity is uncertain, is too manifest to require
argument.
To enumerate the different trusts which are best re-
posed in these companies is to repeat Section 156 of the
Banking Laws of this State, which is quoted farther on,
and to which the reader is referred.
154 PRINCIPLES AND PRACTICE OF FINANCE.
While the law does not specifically state that trust
companies shall receive deeds, agreements, securities, or
papers or things in escrow, still, on account of the confi-
dence which they inspire, they are often used for such
purpose.
Probably the greatest and most common field of useful-
ness occupied by trust companies is acting in the capacity
of trustee of stock and bondholders in the formation or
reorganization of corporations. A corporation is organ-
ized, but before its securities can be advantageously
brought to the attention of the investing public, it be-
comes necessary that some one in whom the public have
implicit confidence, and who will not be swayed by per-
sonal considerations or friendships, should investigate the
property which has been incorporated, inquire into the
title to its plant, the legality of its franchises, see that the
mortgage is properly drawn and covers the property
which it purports to mortgage, and that all the legal re-
quirements in regard to the incorporation of the com-
pany, the filing of its certificate of incorporation, the
payment in of the capital required, the payment to the
State of the corporation tax, and all other legal require-
ments have been duly complied with, and certify to the
regularity thereof, and to investigate, supervise, and cer-
tify to the issue of bonds, and to the issue and registra-
tion of stock, and that there has been no over-issue in
either case. Who can do this better than a trust com-
pany, they frequently being the authorized registrar of
the stock of the corporation ?
Not only have companies to be organized, but almost
as frequently reorganized, when it becomes necessary for
the stockholders to secure unity of action upon their
part, to respectively appoint some one to act in their
stead, to receive and register the outstanding securities,
and, upon the deposit with it of a fixed amount, to reor-
ganize the company and to issue new securities for the
TRUST COMPANIES. 155
old, and to register and transmit to the depositors new
securities in the proportion agreed upon in place of the
securities deposited.
Very often the formulating of the plan by which this
re-organization is accomplished and the fixing of the basis
of exchange of the old securities for the new is undertaken
and carried through by a trust company.
The procuring of a well known company to undertake
such re-organization in most instances tends greatly to the
success of the re-organization, and the fact that a com-
pany of good repute is the trustee or registrar of the
bonds and stock of a corporation adds very appreciably
to the value of such securities.
Trust companies also act as agents for the payment of
obligations maturing at future dates, such as the premiums
on policies of insurance, assessments on stocks, interest
on mortgages, etc., and for the collection of coupons, of
interest, of premiums, and so on.
As agents for the stock and bond holders of various
kinds of corporations, who desire to act as a unit.
Also as registrar, where such certificates may be regis-
tered so as to indemnify the holder against loss in case
such certificate should be lost or destroyed.
In the case of individuals, they act as the trustees of
special funds for the benefit of married women, or minors,
for insane persons, habitual drunkards, lunatics, or for de-
visees whom the giver may regard as incompetent to take
care of the funds so placed in trust. For a corporation
for the accumulation of a sinking fund, etc.
Trust Companies are organized exclusively under the
laws of the State in which they are located, and are subject
to the supervision of the State Banking Department, the
same as State Banks.
The powers and privileges granted them are much
greater than those granted banks, except that they are
not permitted to issue circulating notes, but may in all
156 PRINCIPLES AND PRACTICE OF FINANCE.
other ways perform the functions of a bank in addition to
those specially conferred on them. These powers and
privileges are best enumerated in the language of the law
under which they are organized.
" Section 156 : Upon the filing of any such certificate of
authorization of a trust company, the persons named therein
and their successors shall thereupon and thereby become a
corporation, and in addition to the powers conferred by the
general and stock corporation laws, shall have power :
" i. To act as the fiscal or transfer agent of any State, mu-
nicipality, body politic, or corporation ; and in such capacity
to receive and disburse money, and transfer, register, and
countersign certificates of stock, bonds, or other evidences of
indebtedness.
" 2. To receive deposits of trust money, securities, and other
personal property from any person or corporation, and to loan
money on real or personal securities.
" 3. To lease, hold, purchase, and convey any and all real
property necessary in the transaction of its business, or which
the purposes of the corporation may require, or which it shall
acquire in satisfaction or partial satisfaction of debts due the
corporation under sales, judgments, or mortgages, or in settle-
ment or partial settlement of debts due the corporation by any
of itfe debtors.
" 4. To act as trustee under any mortgage or bond issued
by any municipality, body politic, or corporation, and accept
and execute any other municipal or corporate trust not incon-
sistent with the laws of this State.
" 5. To accept trusts from and execute trusts for married
women, in respect to their separate property, and to be their
agent in the management of such property, or to transact any
business in relation thereto.
" 6. To act under the order of appointment of any court of
record as guardian, receiver, or trustee of the estate of any
minor, the annual income of which shall not be less than one
hundred dollars, and as depositary of any moneys paid into
court, whether for the benefit of any such minor, or other
person, corporation, or party.
TRUST COMPANIES. 157
" 7. To take, accept, and execute any and all such legal
trusts, duties, and powers in regard to the holding, manage-
ment, and disposition of any estate, real or personal, and the
rents and profits thereof, or the sale thereof, as may be granted
or confided to it by any court of record, or by any person,
corporation, municipality, or other authority ; and it shall be
accountable to all parties in interest for the faithful discharge
of every such trust, duty, or power which it may so accept.
" 8. To take, accept, and execute any and all such trusts and
powers of whatever nature or description as may be conferred
upon or intrusted or committed to it by any person or persons,
or any body politic, corporation, or other authority, by grant,
assignment, transfer, devise, bequest, or otherwise, or which
may be intrusted or committed or transferred to it, or vested
in it by order of any court of record, or any surrogate, and
to receive and take and hold any property or estate, real or
personal, which may be the subject of any such trust.
" 9. To purchase, invest in, and sell stocks, bills of ex-
change, bonds and mortgages, and other securities ; and when
moneys, or securities for moneys, are borrowed or received on
deposit, or for investment, the bonds or obligations of the
company may be given therefor, but it shall have no right to
issue bills to circulate as money.
" 10. To be appointed and to accept the appointment of
executor of or trustee under the last will and testament, or
administrator with or without the will annexed, of the estate
of any deceased person, and to be appointed and to act as the
committee of the estates of lunatics, idiots, persons of unsound
mind, and habitual drunkards.
" No such corporation shall have any right or power to make
any contract, or to accept or execute any trust whatever, which
it would not be lawful for any individual to make, accept, or
execute.
u No loan shall be made by any such corporation, directly,
or indirectly, to any director or officer thereof.
" No such corporation shall transact its ordinary business by
branch office in any city not named in its Certificate of In-
corporation or Charter as the place where its business is to be
transacted."
158 PRINCIPLES AND PRACTICE OF FINANCE.
Thirteen or more persons may form a trust company,
upon filing a certificate stating the name of such company,
its place of business, the amount of its capital, and the
number of shares into which it is divided, the name,
residence, and post-office address of each member of the
corporation, and the term of the existence of such
company, which shall not exceed fifty years, and a declara-
tion that each member of such corporation will, if elected
a director, faithfully discharge the obligations and re-
sponsibilities of such office. This certificate must be
filed with the Superintendent of Banking of the State
within sixty days after its execution, and a duplicate must
be filed in the office of the county clerk of the county
where such company is to carry on business.
The minimum capital of such companies shall be as
follows : In cities containing
25,000 inhabitants or less $100,000
25,000 inhabitants or more 150,000
100,000 to 250,000 200,000
More than 250,000 500,000
Before filing such certificate notice must be published
at least once a week for four successive weeks in a news-
paper to be designated by the Superintendent of Banks in
the city where such trust company is to be located, and
shall set forth the facts so stated in the certificate of
organization. This notice must be sent to every trust
company doing business in such city at least fifteen days
before the filing of the organization certificate.
The Superintendent upon the receipt of such certificate
conforming to the provisions of this act, as to execution,
notice, etc., shall file the same, and he shall then proceed
to ascertain the fitness of the persons named for the dis-
charge of the trust which they ask permission to assume,
and if such investigation prove satisfactory, he shall
within sixty days after the filing of such certificate, and
after knowledge that the entire capital stock has been
TRUST COMPANIES. 159
paid in, in cash, issue under his seal a " Certificate of
Authorization " to the incorporators to commence
business, which shall be transmitted to the County Clerk,
who shall file the same and attach it to the organization
certificate and record both certificates in the records of
incorporation. A duplicate of such certificate ot
authorization shall be filed by the Superintendent in his
office.
The Superintendent, may, however, if he deem such
organization inexpedient refuse to issue a certificate of
authorization, and shall file a notice of such refusal with
said County Clerk.
Section 157 provides that letters testamentary, of
guardianship, of administration with the will annexed, and
the like, may, in a proper case, be granted to trust
Companies, the only exception being that of simple letters
of administration to which, in a like case, the Public Ad-
ministrator is entitled.
Upon the appointment of a trust company as executor,
the Court does not require the filing of a bond for the
faithful performance of its duties as in the case of an
individual, but the capital stock, property, and effects of
such trust company shall be held liable therefor, and the
debts due by said corporation as executor, administrator,
guardian, trustee, committee, or depositary shall have the
preference. Power, however, is given the courts to re-
quire trust companies to give security, and upon their
failure so to do the court is empowered to remove such
trust company from the exercise of such trust.
They may be required to furnish statements and
accounts as executor, administrator, guardian, trustee,
etc., in the same manner as a natural person.
" The capital of every such corporation shall be invested in
bonds and mortgages on unincumbered real property in this
State worth at least double the amount loaned thereon, or in
the stocks or bonds of this State, or of the United States, or
100 PRINCIPLES AND PRACTICE OF FINANCE.
of any county, or incorporated city of this State duly authorized
by law to be issued.
" The moneys received by any such corporation in trust
may be invested in its discretion in the securities of the same
kind in which its capital is required to be invested, or in the
stocks or bonds of any State of the United States, or in such
real or personal securities as it may deem proper. No such
corporation shall hold stock in any private corporation to an
amount in excess of ten per cent, of the capital of the corpora-
tion holding such stock."
Interest must be paid on all sums of money over one
hundred dollars collected and received by such corpora-
tion acting as executor, administrator, guardian, trustee,
receiver, etc., of any court, or in any fiduciary capacity
under such appointment, or as a depositary of moneys
paid into court at a rate of not less than two per cent, per
annum, until the money so received shall be expended or
distributed. All of such interest moneys which are not
collected annually shall be added to the principal, and
interest thereon shall be paid.
" The affairs of every such corporation shall be managed
and its corporate powers exercised by a Board of Directors of
such number, not less than thirteen or more than twenty-four,
as shall, from time to time, be prescribed in its by-Laws. No
person can be a director who is not the holder of at least ten
shares of the capital stock of the corporation. The persons
named in the organization certificate, or such of them respec-
tively as shall become holders of at least ten shares of such
stock, shall constitute the first Board of Directors, and may
add to their number not exceeding the limit of twenty-four, and
shall severally continue in office until others are elected to fill
their respective places. Within six months from the time
when such corporation shall commence business, the first
Board of Directors shall classify themselves by lot into three
classes, as nearly equal as may be. The term of office of the
first class shall expire on the third Wednesday of January
TRUST COMPANIES. l6l
next following such classification ; the term of office of the
second class shall expire one year thereafter ; and the term of
office of the third class shall expire two years thereafter. At
or before the expiration of the term of the first class, and
annually thereafter, a number of directors shall be elected
equal to the number of directors whose term will then expire,
who shall hold their offices for three years or until their
successors are elected.
" Such election shall be held at the office of the corporation
and at such time and upon such public notice, not less than
ten days, by advertisement in at least one newspaper, approved
by the Superintendent of Banks, published in the city where
such corporation is located, as shall be prescribed in the by-
laws."
In case of failure to elect any director on the day named,
the directors whose terms of office do not that year expire,
may proceed to elect a number of directors equal to the num-
ber in the class whose term that year expires, or such number
as may have failed of re-election. The persons so elected,
together with the directors whose terms of office shall not that
year expire, shall constitute the Board of Directors until
another election shall be held according to law. Vacancies
occurring in the intervals of elections shall be filled by the
Board.
" If default shall be made in the payment of any debt or
liability contracted by any such corporation, the stockholders
thereof shall be individually responsible, equally and ratably,
for the then existing debts of the corporation, but no stock-
holder shall be liable for the debts of the corporation to an
amount exceeding the par value of the respective shares of
stock by him held in such corporation at the time of such
default.
*' For all losses of money which the capital stock shall not be
sufficient to satisfy, the directors shall be responsible in the
same manner and to the same extent that directors are now
responsible in law or equity.
" Every trust company incorporated by a special law shall
possess the powers of trust companies incorporated under the
ii
1 62 PRINCIPLES AND PRACTICE OF FINANCE.
general law, and shall be subject to such provisions thereof
as are not inconsistent with the special laws relating to such
specially chartered company."
The consolidation or merger of trust companies is pro-
vided for by an act which went into effect April 23, 1895.
See page 102 State Banks.
It is true that w*hile trust companies are compelled by
law, as stated in Section 160, to pay interest on all sums
in their hands held in certain capacities, yet the rate of
interest is lower than that paid by savings banks, although
the money on deposit in the trust company is subject to im-
mediate withdrawal, whereas a savings bank may require,
according to its constitution and by-laws and the regula-
tions printed in its pass-books, a notice of sixty days.
The sources of income are much more diversified than
in the case of banks. Drawing a large part of their revenue
from acting in the different fiduciary capacities for which
they are created, and for which services they charge a
commission, and being less restricted as to the character,
nature, and time of their loans, they can make many
which the banks cannot. A very large portion of its
loans are upon, or secured by, real estate. In fact, loans
upon real estate in the cities are effected, almost exclus-
ively, through savings banks, trust and life insurance
companies.
Probably the largest source of income of trust com-
panies of New York is acting as the financial agent of
corporations.
CHAPTER VIII.
Safe Deposit Companies Building and Mutual Loan Associations Co-
operative Loan Associations Mortgage and Debenture Companies.
Safe Deposit Companies.
THESE companies may be aptly called the " warehouses
of finance," occupying the same relation to it that storage
warehouses do to commerce.
Article VII. of the State banking laws, which provides
for the organization of these companies, states that they
may be incorporated by five or more persons for the
purpose of taking and receiving upon deposit as bailee
for safe keeping and storage jewelry, plate, money, specie,
bullion, stocks, bonds, securities, and valuable papers of
any kind, and other valuable personal property, and guar-
anteeing their safety upon such terms and for such com-
pensation as may be agreed upon by it and the respective
bailors (depositors) thereof ; and to let out vaults, safes,
and other receptacles for the uses and purposes of such
corporations, by making and filing with the County Clerk
of the County, where the same may be located, and the
Superintendent of Banking, a certificate similar to that
required of other corporations organized under the bank-
ing law.
The law provides that its capital shall not be more than
$1,000,000 nor less than $100,000, except in cities or vil-
lages of less than 100,000 inhabitants, where the same
shall not be less than $10,000; the term of its corporate
existence shall not exceed fifty years ; it shall not com-
163
164 PRINCIPLES AND PRACTICE OF FINANCE.
mence or transact business, not make any loans or advances
on any property left with it for storage or safe keeping,
until the whole amount of its capital stock has been paid
in ; and until its certificate has been approved by the
Superintendent of Banks and duly filed, as in the case of
other banking corporations.
Its affairs shall be managed by not less than five or
more than thirteen directors, who shall be stockholders,
and a majority of whom shall be citizens of this State,
which directors shall, after the first year, be annually
elected at the time and place prescribed by its laws,
notice of which shall be published ten days before the
election in a newspaper in the place where its business is
conducted.
The directors may make such by-laws as they shall deem
proper for the management, disposition of the stocks,
property, and business affairs of the corporation ; pre-
scribing the duties of officers and employees, the manner
of the appointment and election of all officers, and for
carrying on all kinds of business within the objects and
purposes of the corporation.
There shall be a President, to be selected from among
the directors, and such subordinate officers as the by-laws
may designate, who may be appointed or elected. The
Board may require of the officers and employees of the
company such security or bonds for the faithful perform-
ance of their duties as it may deem necessary.
The stockholders shall be jointly and severally liable
for all debts due and owing by the corporation to an
amount equal to the par value of their stock therein over
and above such stock, to be recovered of the stockholders
who are such when the debt is contracted or the loss
or damage sustained, or of any subsequent stockholder.
Any stockholder who may have paid any demand against
such corporation either voluntarily or by compulsion shall
have a right to resort to the rest of the stockholders who
SAFE DEPOSIT COMPANIES. 165
are liable to contribution ; and the dissolution of the cor-
poration shall not release or affect the liability of any
stockholder which may have been incurred before disso-
lution.
If the rent due for any safe or box shall remain unpaid
for three years, the company may cause to be sent to the
person in whose name the safe or box stands, a written
notice in a registered letter, directed to him at the address
recorded on its books, notifying him that if the rent due
is not paid within sixty days, then it will cause the said
safe or box to be opened in the presence of its president,
secretary, or treasurer, and a notary public not in its em-
ploy, and the contents thereof to be taken therefrom, to
be sealed by the notary in a package upon which he shall
distinctly mark the name and address of the person in
whose name the same may stand upon the books of the
company, and the estimated value thereof, and the pack-
age so sealed and addressed, when marked for identifica-
tion by the notary, will be placed by him in one of the
general safes or boxes of the corporation. Upon the ex-
piration of sixty days from the date of mailing such notice,
if such rent is not then paid, the company may itself pro-
ceed and direct the notary to act as above, after doing
which his proceedings shall be fully set out by him in his
own handwriting and under his official seal in a book to
be kept by the corporation for that purpose.
The capital of these companies, when merely used as a
place for the storage of valuables, is not so much a matter
of importance as the character of the precautions taken to
avoid allowing any one not entitled having access to the
boxes or safes, the kind of identification required, the fact
that its walls are fire- and burglar-proof, as none of these
companies have sufficient capital to make good the loss of
valuables which the loss of the contents of one safe might
entail.
Each box or safe holder is furnished by the company
1 66 PRINCIPLES AND PRACTICE OF FINANCE.
with a box or safe, and the key or combination to it, and
is made known to the outer and inner doorkeepers. He
is always given a password, by the use of which he can
secure admittance, if not otherwise recognized by the
doorkeepers. The safes and boxes are arranged in rows
one above another on the walls and in the middle of a
large fire-proof vault, the entrance to which is guarded by
heavy iron bar doors ; the windows, where there are any,
are guarded in the same way. In this vault, at conven-
ient places, are cages made of iron, in which subscribers
may go and lock themselves in, no one from the outside
except an attendant being able to enter, and there cut
their coupons, examine their securities, etc., in absolute
safety. After a subscriber leaves one of these cages, a
trusted employee enters the same and makes a careful
search to see if the subscriber has left any paper or thing
of value, and if he has, the same is taken and put in charge
of the proper officer, who returns the same to the sub-
scriber. *
It is not only much safer and more secure to keep val-
uables in the safe and boxes of these companies than in
safes at an office or residence, but oftentimes more con-
venient.
The location of the company is a controlling element in
the charges made by it. There is no uniform charge by
all companies for the same size safe or box. In each
company the rent is regulated by the size of the safe or
box rented.
Nearly all men of means have their safes and boxes in
one or more of these companies, and when their families
go away from home send their jewels and silver to be
stored ; and even when they are home the family jewels,
when not in actual use, are so deposited for safe keep-
ing.
In regard to consolidation see page 102, State Banks.
BUILDING AND MUTUAL LOAN ASSOCIATIONS. l6/
Building and Mutual Loan Associations.
(Commonly called Building and Loan Associations.)
The very large amount of money invested in these asso-
ciations, which in 1893 in the United States was about
$900,000,000, $37,285,173 of which was in the State of
New York, and $25,000,000 in the State of New Jersey,
together with their rapid growth and wide spread, require
a somewhat lengthy statement of their objects and aims,
which, while they differ slightly in individual cases, are,
taken broadly, the same.
In New York these associations are organized, under
Article V. of the Banking Laws of the State of New York,
1892, which defines the purpose for which they are created
to be:
" The accumulation of a fund for the purchase of real prop-
erty, the erection of buildings, the making of improvements on
lands, the payment of encumbrances thereon, and to aid its
members in the accomplishment of all or any of the above ob-
jects, and the accumulation of a fund to be returned to its
members who do not obtain such advances when it shall
amount to a certain sum per share, to be specified in the cer-
tificate of incorporation."
The method by which these aims are sought to be ac-
complished perhaps demand some explanation.
The basis of these associations is that of a co-operative
savings institution, in which each member has like privi-
leges and obligations with each other member, according
to the series and number of shares held by him. There
is, however, one marked difference between the plan of
saving followed by these associations and the general
method pursued, and that. is, while all savings are volun-
tary in the beginning, after a subscriber begins saving by
the plan adopted by these associations, the continuance
of such savings becomes compulsory to a certain extent,
that is, to as great an extent as the infliction of penalties
1 68 PRINCIPLES AND PRACTICE OF FINANCE.
in the shape of fines, and either entire or partial forfeiture
of the amounts previously paid in can make them so, but
while the law gives the association the right in its by-laws
to provide for absolute forfeiture, this right is rarely ever
exercised. Some of the associations provide after notice
of thirty days payments may cease, and the amounts
already paid in, with such interest as the Board of Man-
agers may allow, will be paid to the withdrawing sub-
scriber, after which all penalties and forfeitures cease.
By the ordinary methods of saving one can continue or
discontinue his savings as he pleases. Of course, if it
becomes desirable to discontinue the payment of the
monthly installments known as dues, it is generally possi-
ble for the subscriber to sell his right in past savings,
which are represented by the shares standing in his
name.
The method of accumulation of the fund is this: The
association is composed of subscribers, to each subscriber
is issued such number of shares as he is willing to pledge
himself to pay for until they obtain a given value, gen-
erally $200, by the payment of a monthly installment of
$i on each share. Obviously it would take, in the absence
of interest on the money so paid in, 200 months to bring
these shares up to that value, but the earning capacity of
money, properly invested, is such that it has been found
that, instead of taking 200 months, it will probably not
take more than 120 months, or ten years, for these shares
to reach their face value of $200. In this time, ten years,
instead of paying in $200 per share, the subscriber has
only paid in $120, and the $120 so paid in has earned the
additional $80 to bring his shares up to their face value.
In order to become a subscriber of such association it is
necessary to enter into a contract with the association to
pay subscriptions on a stated day each month, or suffer
certain penalties and forfeitures.
The profit of the subscriber, either in case he becomes
BUILDING AND MUTUAL LOAN ASSOCIATIONS. 169
a borrower from the association or otherwise, is solely in
the fact that at the end of a given time he receives back
the money he paid into the association, plus such interest
as it may have earned and his proportion of the forfeitures
and penalties inflicted upon defaulting subscribers.
The holder of each share is entitled to borrow from the
association out of the* moneys which it may have on hand
to loan, on acceptable real property, either improved or
to be improved under the direction of the association, a
sum equal to the face value of the shares held by him,
but on the further condition that he must pay a premium,
generally not less than 50 cents a share, for securing such
loan, beyond the legal rate of interest, which he is to pay
for the use of the money advanced. Some of the com-
panies also permit a member who has not already bor-
rowed to build or acquire property, to borrow for other
purposes than acquiring property at the legal rate of
interest, on the deposit of his shares as collateral, to the
extent of 90 per cent, of the amount then paid in on such
shares. In a prominent company, with which the writer is
acquainted, the members availed themselves of this priv-
ilege to the extent of $50,000 during the depression of
1893.
The by-laws of many associations prescribe that the
funds in hand to be loaned shall at stated times be put up
and bid for, and the same loaned to the person bidding
the highest rate of interest, and at the same time offering
satisfactory security, but this plan is now being quite
generally abandoned in favor of what is known as the
" gross premium serial plan," by which a certain premium
per share is charged.
The theory and principle upon which loans are made to
the subscribers are that all the subscribers will not wish
to borrow at the same time, and therefore that the money
of those who do not desire to borrow may be loaned to
those who do.
I/O PRINCIPLES AND PRACTICE OF FINANCE.
Article V. of the Banking Laws of the State of New
York prescribes that building and mutual loan corpora-
tions may be organized by not less than nine persons for
the purposes before stated, by making, acknowledging,
and riling a certificate of incorporation setting forth :
1. The name of the corporation.
2. The location of its principal business office.
3. When its regular meetings shall be held, and how
special meetings may be called.
4. What shall be a quorum to transact business at its
meetings.
5. How members shall be admitted, and their qualifi-
cations.
6. What officers, directors, or attorneys of the corpora-
tion there shall be, and how and when chosen.
7. The duties of such officers, directors, or attorneys,
and how removed or suspended from office.
8. The names of the persons who shall be such officers
and directors for its first year, and until others are chosen
or appointed in their places.
9. The entrance fee of new members and new shares.
10. The amount of each share.
11. The monthly or weekly dues per share.
12. The redemption fee on shares on which advances
shall be made.
13. The fees to be paid on the transfer of shares.
14. The penalties for non-payment of dues or fees,
or other violation of the provisions of the certificate.
15. The manner of redemption of shares by advances
made thereon.
1 6. The mortgage security to be taken on such ad-
vances, and how the same may be changed.
17. The manner of the transfer or withdrawal of
shares.
1 8. The manner of investing funds not required for ad-
vances on shares.
BUILDING AND MUTUAL LOAN ASSOCIATIONS. I/I
19. The qualification of voters at its meetings and the
mode of voting.
20. The ultimate amount to be paid to the owners of
unredeemed shares.
21. The manner of altering or amending the certificate
of incorporation.
22. Such other provisions not inconsistent with law as
shall be necessary for the convenient and effective trans-
action of its business.
This certificate must be approved by the Superintendent
of Banks, and filed in the office of the Clerk of the County
in which the principal office of the corporation is located.
A certified copy must also be filed with the Superin-
tendent of Banks, after which the subscribers thereto and
their successors shall become a corporation by the name
specified in said certificate.
The directors may demand from the members and
stockholders the sums of money subscribed for at such
times and in such installments as the certificate of incor-
poration shall prescribe, under penalty of forfeiting the
shares of stock subscribed for and all previous payments
made, if payment is not made within sixty days after per-
sonal demand or notice published for six successive
weeks in the newspaper published nearest to the principal
place of business of the corporation.
The association may borrow money for temporary pur-
poses not inconsistent with the objects of this organiza-
tion, but no such loans shall be of longer duration than
two years, nor shall its indebtedness for money so bor-
rowed at any one time exceed one fourth of the aggregate
amount of its shares and parts of shares and the income
actually paid in and received. No loan shall be made to
any member or stockholder exceeding in amount the par
value of the capital stock subscribed for by said member.
Parents and guardians may hold stock for their minor
children or wards, provided the cost of such shares be
1/2 PRINCIPLES AND PRACTICE OF FINANCE.
defrayed from the personal earnings of such children or
wards, or gifts from persons other than their parents.
Dividends from the earnings shall be payable as pre-
scribed in the articles of incorporation.
" No holder of redeemed shares shall claim to be exempt
from making the monthly or other stated payments provided
in the certificate of incorporation on the ground that by rea-
son of losses or otherwise the corporation has continued
longer than was originally anticipated, whereby the payments
made on such shares may amount to more than the amount
originally advanced, with legal interest thereon ; nor shall the
imposition of fines for non-payment of dues or fees or other
violation of the certificate of incorporation, nor the making of
any monthly payment required by the certificate of incorpora-
tion, or of any premium for loans made to members, be
deemed a violation of the provisions of any statute against
usury.
" All the shareholders of any such corporation shall be
individually liable to the creditors to an amount equal to the
amount of stock held by them respectively for all debts con-
tracted by it. The directors or other officers of every such
corporation shall be personally liable for any fraudulent use,
disposition, or investment of any moneys or property belong-
ing to it, or for any loss which shall be incurred by any invest-
ment made by any such directors or officers, other than such
as are mentioned in, and authorized by, this article ; but no
director or other officer shall be so liable unless he authorized,
sanctioned, approved of or made such fraudulent use, disposi-
tion, or investment."
The shares held by the members and stockholders of
every such corporation shall be exempt from sale on exe-
cution for debt to an extent not exceeding $600 in such
shares at their par value.
" Any existing corporation formed solely for the purposes
mentioned in this article, or any of them, may, by a vote of
the persons holding a majority of the voting shares of stock
CO-OPERATIVE LOAN ASSOCIATIONS. 1/3
of such corporation at any regular meeting after this article
shall take effect, become entitled to the benefit of this article
on complying with Section 170 of this chaper, or such por-
tions thereof as have not been previously complied with."
The consolidation or merger of Building and Mutual
Loan Associations and Co-operative Loan Associations
is provided for by " An Act to Amend the Banking
Law," which became a law April 23, 1895. See State
Banks, page 102. In the case of these associations the
act provides that dissenting shareholders may demand
cancellation of their stock or liquidation of their in-
debtedness, the value of which stock, or the amount of
which indebtedness is to be determined by three ap-
praisers, to be appointed by the Supreme Court of the
district in which the county of domicile of the corpora-
tion is located, upon application made by such stock-
holders upon eight days' notice to the corporation, within
sixty days after merger.
Co-operative Loan Associations.
These associations may be organized by not less than
fifteen persons.
The objects sought are practically the same as those of
Building and Mutual Loan Associations.
A certificate of organization must be filed with the
Superintendent of Banks at Albany, and a copy with the
County Clerk of the County where the principal office of
such Company is located, which certificate must be ap-
proved by the Superintendent of Banks before the sub-
scribers and their successors shall become a corporation
by the name specified.
The officers of such association shall be a President,
Vice-President, Treasurer, and Secretary, all of whom
shall be ex-officio members of the Board of Directors,
which Board shall consist of not less than nine members,
exclusive of ex-officio members.
1/4 PRINCIPLES AND PRACTICE OF FINANCE.
By-laws shall be adopted prescribing the terms of
office, the duties and compensation of officers, the time
of their election, and of periodical meetings of the officers
and shareholders, how special meetings may be called
regulating the due conduct of the business of the corpora-
tion, defining the duties of its officers and committees,
the mode of determining and declaring the withdrawing
value of shares, and making such other regulations in
regard to the transaction of the business of the corpora-
tion as are not inconsistent with law.
The Board of Directors shall each year determine the
compensation of the Treasurer and Secretary, and they
may appoint and remove at pleasure an attorney for the
corporation.
The capital stock, not to exceed one million dollars,
divided into shares of the matured value of two hundred
dollars each, shall consist of the accumulated savings of
its members which it holds. The total number of out-
standing shares at any one time shall not exceed ten
thousand. The shares shall be issued in yearly or half
yearly series, and at such times as shall be prescribed by
the by-laws. No shares of a prior series shall be issued
after the issuing of shares of a new series. No person
shall hold more than ten unpledged or more than twenty
pledged shares in any one series.
Savings paid to the corporation upon shares shall be
called dues. At or before each stated monthly or semi-
monthly meeting of the Board of Directors, each share-
holder shall pay to the board or a committee thereof, one
dollar dues upon each share of stock held by him until
the share reaches the value of two hundred dollars, or is
withdrawn, cancelled, or forfeited. Payment of dues on
shares of each series shall commence from its issue.
Fines may be imposed and collected, not exceeding 10
per cent, for each month in arrears, for every dollar of
dues or interest which a shareholder shall refuse or neglect
CO-OPERATIVE LOAN ASSOCIATIONS. 175
to pay at the time it is due. An entrance fee may also
be charged, not exceeding twenty-five cents on every share
of stock issued by the corporation.
Unlike in the case of a building and loan association, the
law prescribes that a member may withdraw the accumu-
lations upon his share after one month's written notice to
the Secretary, which withdrawing shareholder shall be
paid the withdrawal value of his share as prescribed by
the by-laws at the last distribution of profits before the
notice of withdrawal, together with all it has paid since
such distribution, and such interest on the value of the
shares at the time of the last distribution, and on the dues
thereafter paid, as the by-laws shall determine, less any
fines unpaid and a proportionate share of any unadjusted
loss ; but not more than one half of the receipts of the
corporation, and when the corporation is indebted on
matured shares, not more than one third of such receipts
shall be applicable to the payment of withdrawing share-
holders. Withdrawing shareholders shall be paid in the
order in which their notices of withdrawal were filed with
the Secretary. The board of directors may in their dis-
cretion, under rules made by them, retire the unpledged
shares of any series at any time after four years from the
date of their issue by enforcing withdrawals of the same ;
but the shareholders whose shares are to be retired shall
be determined by lot, and they shall be paid the full value
of their shares, less all fines and their proportionate part
of any adjusted loss.
Upon an unpledged share of a given series reaching the
value of two hundred dollars, all payment of dues thereon
shall cease, and the holder be paid out of the funds of
the corporation $200 therefor, with such rate of interest
as shall be determined by the by-laws from the time the
board of directors shall have declared such shares to be
matured until paid ; but at no time shall more than one
third of the receipts of the corporation be applicable to
176 PRINCIPLES AND PRACTICE OF FINANCE.
the payment of matured shares without the consent of the
board of directors, who shall also determine the order
of the payment of matured shares.
At each monthly stated meeting, immediately following
the receipt of dues and interest, the board of directors
shall offer to members of the corporation desiring to bor-
row, all accumulations applicable to that purpose, in sums
of two hundred dollars, the value of a matured share, or
a multiple thereof, or the fractional parts of one third of
one half thereof. If more than one member desires to
borrow, the right to the loan shall be determined by an
open bidding of a premium per share, and the member
bidding the highest premium shall be entitled to the loan
upon giving proper security ; and the amount of the
premium paid shall be deducted from the sum loaned at
the time of loaning, and the receipt thereof shall not be
deemed a violation of the usury laws. No member can
borrow a larger sum than shall be equal to the matured
value of the shares held by him. A borrowing member,
for each share or fractional part thereof borrowed upon,
shall, in addition to the dues on his shares, pay monthly
interest on his loan at the rate of six per cent, per annum,
or such lower rate as the by-laws shall name, until the
shares borrowed upon reach the matured value of two
hundred dollars each, or the loan is repaid ; and when
such matured value is reached, the loan upon it shall be
paid out of the share, and the proper surrender and
acquittances be made. See last paragraph Building and
Mutual Loan Associations.
Mortgage and Debenture Companies.
These companies are of comparatively recent growth
and are a necessity of the unnaturally rapid development
of our Western agricultural sections by persons who, with-
out the aid afforded by these companies, would be unable to
retain their holdings, which often in the first instance were
MORTGAGE AND DEBENTURE COMPANIES. 177
simply pre-empted Government lands, the holders owning
little more than the land itself, and not having the means
with which to erect suitable buildings thereon and to pur-
chase the implements required for its cultivation. Settlers
of this class usually, in order to procure capital, mortgage
their lands as soon as they have any commercial value,
which, of course, is as soon as they can produce anything
which can be marketed.
Holders of the mortgages on such lands, as a rule, reside
in the money centres of our country, which are mainly on
the Atlantic seaboard, and can make no personal examina-
tion of the land on which they loan. This work falls
within the province of the mortgage companies, who,
through their agents, make examinations of the lands,
extend the loans, and then through their representatives,
principally in the East, sell the mortgages to investors.
The farming lands of several Western States are mort-
gaged to more than half of their appraised value, which
mortgages have been in no small degree negotiated
through mortgage and debenture companies.
When properly conducted, their loans carefully chosen,
and the company economically managed, the mortgages
of such companies certainly offer a fair investment, and
companies of this description are of great use in bringing
together the borrower and the lender in a way quite
impossible without their aid.
Each company, as a rule, confines itself principally to a
given area, frequently taking the name of the State or
section where its loans are located.
CHAPTER IX.
\
Private Bankers Brokers Stock Brokers Note Brokers Puts and Calls.
Private Bankers. In an estimate of the financial
strength of a great city, or a country, few of us, our minds
filled with the enormous aggregation of capital of banks,
take into consideration what an important element is the
private banker, who, practically unrestricted as to his deal-
ings, investments, and ventures, save by the consideration
of receiving good security for his advances and avoiding
placing his own or his clients' funds where they may be
insecure, or regained only at expense and loss of interest,
undertakes and promotes enterprises which National and
State banks, by law, are prohibited from doing. Still less
do we consider that while the aggregate capital and sur-
plus of the National and State banks of New York City,
clearing through the New York Clearing House, for
instance, does not exceed perhaps $134,000,000, that
of the private bankers more numerous 't is true, more
than trebles this amount, and while $5,000,000 is the
largest capital of any of our banks, there are certainly
half a dozen or more private banking firms in the city of
New York whose individual capital is not less than
$10,000,000.
Private bankers, like banks, receive money from one
person and loan it to another, sometimes paying interest
on the money which they receive, and always charging
interest on that which they loan ; the difference between
the two being their profit.
178
PRIVATE BANKERS.
By far the larger portion of their business is in the
furtherance of new enterprises, and the reorganization of
old, the forming of companies, the consolidation of already
existing corporations or businesses, the selling and buying
of exchange, and the salp and issuance of letters of credit,
certificates of deposit, etc.
Private bankers in the United States have all the
privileges granted to State banks generally, but are not
subject to the same restrictions excepting when they issue
circulating notes, which they can do under the laws of
most States, then they become subject to the same restric-
tions and limitations in that respect as State banks ; but
while they possess that right it is rendered of no practical
value to them by the National tax of ten per cent, on the
circulating notes of other than National banks.
In England at present, and in this country up to the
imposition of the National tax above alluded to, the
issuance of circulating notes was a source of considerable
revenue.
The business of banking and promoting, now being
generally carried on by the same firms, is usually so inti-
mately connected as to be almost inseparable ; most of
the larger banking houses deriving the greater part of their
incomes from the promotion of various enterprises, by
which is meant the furnishing to those enterprises in ex-
change for its securities a sufficient amount of money to
enable them to begin and continue their operations.
The reorganization of various properties also furnishes
a large field of usefulness, and offers very handsome
profits and commissions.
They enter into contracts with companies, by which they
agree to advance them money to a given amount, receiv-
ing for such advances the bonds and stock of such com-
panies at a given price. These they dispose of to their
clients and customers. On such transactions they make
two profits, one being the interest on the money loaned,
180 PRINCIPLES AND PRACTICE OF FINANCE.
and the other the advance in price on the securities, or a
commission on the sale.
To enumerate all the sources of income of private
bankers is to name the various businesses of the country,
in all of which they are more or less directly interested,
and which they assist and are assisting daily.
Perhaps no great industry owes more to their generous
assistance than do the railroads, whose securities are
largely owned and almost exclusively placed by them ;
and when it is borne in mind that the railroad interests of
the United States represent some nine billion of dollars,
or nearly one fifth of the whole wealth of the country, and
but for their existence vast tracts which now have great
value would be comparatively valueness, it may be seen
to what an extent the development of the West in par-
ticular is due to the foresight and enterprise of the private
banker.
But vast interests and values are perhaps quite as much
affected by the maintenance of existing enterprises as by
the creation or extension of new ones, and oftentimes the
reorganization of a railroad is as important to the interests
of the section which it traverses as the building of a new
road would be to another section.
The. consolidation of properties either friendly or an-
tagonistic, for the purpose of eliminating competition,
reducing expenses, or increasing earnings, is a source of
almost constant employment for the larger houses.
In the organization of a company the method of pro-
cedure is something like this : We will take a railroad
company, for instance. Certain persons desiring to build
a road from one point to another, after making inquiries
as to the probable business which can be secured, make
estimates as to the cost of the right of way in many
instances a large portion of which can be secured without
cost, the land being given to the company either by the
persons whose lands will be traversed, in the hope of
PRIVATE BANKERS. l8l
making the remainder more valuable, or grants are made
by the State, county, and in many instances by the
National government, which has given millions of acres
to the transcontinental lines ; plans are then submitted to
some railroad contractor, who makes an estimate as to the
cost of construction of such a road as is desired, a rough
survey having first been made. These plans together with
the contractor's estimates are all submitted to the bank-
ing house, which if it agrees to take up the matter
perfects the organization of the company, by procuring
the passage of an act to that effect by the State or States
in which it is located, and after the filing of its certificate
of organization, the payment of such fees and taxes as are
necessary to complete such organization, proceeds through
the directors and stockholders to issue its mortgage
bonds and stock, of which it retains or subsequently
receives a certain portion as security for advances which
they agree to and do make. These securities they then
place among their customers. The agreement frequently
is that they will only supply the company with such sums
as they can realize from a sale of its securities, for which
sale they charge a commission. The securities issued by
the company in excess of the amount necessary to procure
these advances are retained by it in its treasury.
In the reorganization of companies the usual method
is for the security holders to deposit with some trust
company, usually named by the bankers effecting the re-
organization, their securities. After a sufficient propor-
tion have been deposited to insure the success of the
reorganization, and after the completion of the necessary
preliminaries, the depositors receive securities of the new
company at the rate agreed upon in the reorganization
agreement.
When a property is put in the hands of a receiver,
a reorganization is about the only thing to be done, as the
company is bound to be reorganized either by the pur-
1 82 PRINCIPLES AND PRACTICE OF FINANCE.
chaser or the creditors, generally the bondholders. These
reorganizations are usually very profitable to the bankers
consummating them.
Brokers. There are so many kinds of brokers, in fact,
as many kinds as there are commodities or paper repre-
senting values to be sold and purchased, that it is impos-
sible to speak of them all. Our remarks will therefore be
confined to Stock Brokers and Brokers of Commercial
Paper, commonly known as Note Brokers.
Stock Brokers. The principal places of business of the
stock broker in New York is the Stock Exchange, and
the Consolidated Exchange, where most active stocks are
dealt in, but in addition to these stock brokers, members
of one or both exchanges, there are a large number who
belong to no exchange, and who deal largely in street rail-
way and gas stocks, and State, municipal, and county
bonds and warrants, called " Investment Securities.'*
The number of brokers in New York engaged in the sale
of securities is certainly several thousand.
While most of the banking houses in New York do
what is known as a " banking and brokerage business,"
there are a great many brokers whose business is solely
confined to the buying and selling of stocks and bonds ;
and some trade almost wholly in the securities of certain
properties.
A membership in one or more of the principal ex-
changes of the country is now considered a pre-requisite
to success, and there are comparatively few of the chief
houses who do not have memberships in several. In
New York a membership in the " New York Stock Ex-
change " is indispensable to the carrying on of a large
stock-brokerage business, although some of the brokers
on the " Consolidated Stock and Petroleum Exchange "
do considerable business.
Stock brokers rise in various gradations from the " curb-
stone " broker who buys and sells stock on the curb-stone,
BROKERS. 183
the broker who holds forth in some of the rooms known
by various names, but better known to the public as
" bucket " shops, until you finally come to the opulent
Stock Exchange man who drives to his office in his car-
riage, and buys and sells stocks by the thousand or ten
thousand shares.
That New York is not suffering from a dearth of stock
brokers may be inferred from the fact that the Stock
Exchange furnishes noo, the Consolidated as many more,
and they seem, during a busy market, literally to spring
out of the curb of New Street.
There can scarcely be less than six or seven thousand
men engaged daily in New York in various ways in the
increasing or decreasing of the prices of various stocks and
bonds, especially if we include the brokers who, belonging
to no exchange, make a specialty of State, city, and county
bonds, which are rarely, if ever, dealt in on the exchanges.
Many of the commission houses, brokers who, for a com-
mission, buy and sell for others, make it a part of their
articles of partnership that the members of their firm shall
not speculate on either their individual or firm account.
There are many good reasons for this. The first is that the
firm may not be injured by the speculation of its mem-
bers, and find itself suddenly embarrassed by losses of
which it had no knowledge ; and the second is that mem-
bers of said firm shall be in a position to advise their
customers disinterestedly, which, of course, they might
not and probably would not be if they were themselves
large buyers or sellers of stocks, the price of which they
desired to see increased or decreased ; and, thirdly, this
rule being known, the customers would have greater faith
in and reliance upon the advice given them. For the
same reasons, and the additional one that speculation at
times offers great temptation to dishonesty and the
betrayal of trusts, the clerks of many houses are prohib-
ited from speculating.
1 84 PRINCIPLES AND PRACTICE OF FINANCE.
A brief description of the way in which business is
done in a well conducted office perhaps would not be out
of place. We will confine it to the office of a member of
the Stock Exchange. The first thing in the morning, is
the opening of the mail to see what orders have been sent
in. Such of these as are not to be attended to by the
members of the firm are assigned to other brokers. The
cashier reports the condition of the firm's finances bal-
ances in banks, and what loans, if any, are needed. Nego-
tiations often are had simply by telephone message, and
the loan arranged, it being understood, of course, that
proper security will be deposited to cover it. The open-
ing of the Exchange at ten o'clock finds all brokers with
any business to transact on the floor, and with the excep-
tion of a short interval for lunch, although many brokers
do not allow themselves even this respite, they usually
remain there till three o'clock, when business on the floor
is over for the day. From ten to three, however, the
broker has been in frequent communication, by messenger
and telephone, with his office. His duties on the floor of
the exchange, while described at greater length in the
article on the New York Stock Exchange, are, briefly, to
execute the orders of his customers.
The charge made for the buying or selling of a stock is
one eighth of one per cent, of the face value of such stock.
All the shares on the Stock Exchange, with two excep-
tions, being of the face value of one hundred dollars a
share, and these two are fifty dollars a share, one hundred
shares of one hundred dollars per share is the smallest
quantity of stock bought or sold on the Stock Exchange,
and in the case of the exceptions just mentioned two
shares of fifty dollars each are counted as one, so that not
less than two hundred shares of these stocks are dealt in.
This represents a par value of ten thousand dollars, one
eighth of one per cent, of which would be $12.50. This
is the price charged persons not members of the Ex-
BROKERS. 185
change, but one member may do business for another
member at as low a rate as $2 per hundred shares. The
penalty for the violation of these rules is fine, suspension,
or expulsion from the Exchange, as the Governing Com-
mittee may elect.
In most of the larger offices there are great blackboards
with the names of all the principal stocks, cotton, wheat,
lard, etc., near which are one or more tickers from which
the quotations are taken and written on the board with
great rapidity, this of itself occupying the time of one
and sometimes more clerks. Standing and seated around
the room, intently watching the blackboard, are the cus-
tomers of the firm. Many of them have pads in their
hands, on which to write their orders, which are handed
to clerks, and by them checked and handed to the tele-
phone clerk, telegraph operators, or messengers, as the case
may be, by whom they are immediately sent or delivered.
After the Exchange business is over the brokers return
to their offices, and the business of the day is written up,
the correspondence attended to, etc.
Some of the principal houses while having as many as
three or four Stock Exchange members, do a large share
of their buying and selling through other brokers, to con-
ceal their identity from their fellow-brokers, a knowledge
of which might tend to injure their interests.
Quite a number of brokers are known as " Specialists."
They devote their time to one particular stock, and can
always be found at the part of the floor where that stock
is traded in. These men, however, do most of their busi-
ness for other brokers, and are called " $2' Brokers."
A very large proportion of the buying and selling of
stock is done on margin, and a comparatively small per-
centage of outright purchases are made. Some brokers
require a larger margin than others, and all brokers require
heavier margins on some stocks than on others, while
there are stocks which no broker will buy on margin.
1 86 PRINCIPLES AND PRACTICE OF FINANCE.
The amount of margin required is dependent not alone
on the character of the stock, but also on the condition
of the money market, and all brokers reserve to them-
selves the right to call for more margin.
As a rule, any of the active stocks which are fairly
steady can be bought on a ten per cent, margin. That is,
by depositing one thousand dollars with your broker you
can buy one hundred shares of stock. In speculating on
margin it should be remembered that while the smaller the
percentage of margin the greater the number of shares
which can be purchased for a given sum, yet, in case of
the market going against the speculator, the sooner the
margin becomes exhausted, before which event he has
either to put up more margin or lose what he has already
deposited, whereas the same amount of money represent-
ing a larger margin on a smaller purchase would have
more than covered the fall, and a later recovery of the
price of the stock may leave him a profit.
Another matter for a speculator to consider is the in-
terest charge made by the broker, in purchases on mar-
gins, the usual charge being five per cent., and, of course,
if your money is earning less it is evidently to your advan-
tage not to borrow at a higher rate than your own money
is earning. The broker charges the customer interest on
the difference between the margin deposited and the
amount it takes to buy the stock outright. Thus, if on
a purchase of $10,000 of stock selling at par $1000 is de-
posited as margin, $9000 more is necessary to complete
the purchase ; this the broker either furnishes or becomes
liable for, holding the stock as security, and charging his
customer interest on the $9000 until the stock is either all
paid for or again sold ; and while this amounts to only a
little over $1.30 per day, we must not forget that if the
stock is held for any length of time it takes quite a sub-
stantial slice out of the profits, if it does not entirely
absorb them.
BROKERS. IS/
But a small proportion of the purchases on the Ex-
change are made for investment, most being made for a
quick sale, or " turn " as it is called, the purchaser or seller
intending to buy or sell as soon as he can make a profit
by doing so ; the broker in the event of a profit paying
him the difference between the price at which he buys and
that at which he sells, less his commissions and interest
charges ; or in case of a loss, applying the customer's
margin to the payment of such loss, the broker's commis-
sions and interest charges. Should the commissions and
interest exceed the margin deposited, then the client has
to make good the deficiency.
Where stocks are bought outright and paid for, they
are delivered to the purchaser, or held by the broker for
him, subject to the owner's order.
Brokers' offices generally have telegraph and telephone
facilities, tickers, and every means of obtaining immediate
information in regard to the state of the crops, the finances
of the country, and of the world, and everything else that
may have an influence on the stock market, and there is
scarcely a better informed man as to the material condi-
tion of the different parts of the country than the broker,
whose success in business is largely due to the correctness
of the advice he gives his clients.
Conditions and circumstances which influence the price
of stocks are so numerous as to defy exhaustive state-
ment, but a few of the most important will be given.
First, the condition of the property ; next, the condi-
tion of the country from which the company draws its
business, whether it is such as to warrant a continuation
of the present condition of affairs, and in that connection,
of course, must be considered the yield of the section,
whether it be an agricultural, mining, or lumber section.
Next, the management of the company, the ratio of its
earnings to expenses, the presence of competitors, and, in
fact, everything that might tend to make it a more profit-
1 88 PRINCIPLES AND PRACTICE OF FINANCE.
able or a less profitable investment. The general condi-
tion of the money market must be considered carefully,
and especially in the case of new companies, or those re-
quiring assistance, to be procured by the borrowing of
money upon their securities ; for when the money market
is easy they can place their securities at a better price
than if it is tight, but they must in any event, in the case
of railroads, have the money to build their tracks or ex-
tend their operations. On a tight market they have to
sell more stock to secure the same amount of money than
in an easy market, or incur a greater obligation, as each
share, no matter what price it sells at, is an obligation of
the company for the amount written on its face. Another
consideration is the class of persons by whom the larger
part of the stock is held, whether they are persons who
would on a slight " scare " have to relinquish their " hold-
ings," as the stock would necessarily decline in price
under heavy offerings.
In the case of companies requiring no such assistance,
where the stock is bought for investment, and the prop-
erty is well known to be a " dividend payer/' the condi-
tion of the money market is of less consequence, as the
tightness of money will not to the same degree affect the
earning capacity of the company.
Consolidation of properties nearly always tends to in-
crease the price of their securities, unless there is a dis-
proportionate issue of securities, because it is assumed
that competition is thereby largely eliminated, expenses
reduced, rates raised, and net earnings increased.
Traffic agreements, which are contracts entered into by
two or more railroads drawing their business from the
same section or sections, by which they agree upon a
uniform rate for given services, and a certain apportion-
ment of the business, is in effect a consolidation to a cer-
tain extent, and always tends to increase the price of the
stock of the companies parties to it. These agreements
BROKERS. 189
have become an absolute necessity in many cases, to
avoid bankruptcy of the roads entering into them, com-
petition having become so fierce that in many instances
they were doing business at absolutely ruinous rates, and
a continuation of such competition must result in the
ruin of many of the parties concerned.
Rumors that certain companies will show increased
earnings or decreased earnings, that they will fail to
declare dividends on certain issues of stock, or that they
will declare larger dividends, that they will fail to pay
coupons falling due on certain dates, and, in fact, any-
thing that will have a tendency to increase or decrease
the price of its securities, are diligently circulated for the
purpose of affecting the market ; also stories as to the
solvency of known large holders of its stocks ; and while
the law has done its utmost to punish the circulating
false reports, it cannot keep foolish people from becoming
frightened or over-sanguine, as the case may be; and
many have been the failures caused by the circulation
and the heeding of such rumors or " tips," as they are
called, many people for the time apparently forgetting
that the tips which they are happy in possessing have
been purposely given to them with the object of inducing
them to do something to the advantage of others. For
instance, nothing could be more obviously to the advan-
tage of a person " short " of a particular stock, and who
naturally wishes to buy it at the lowest price, than the
circulation of a report among the holders of that stock,
that the receipts of the company showed a falling off, or
that a competitor's business had greatly increased, or that
it had received concessions prejudicial to the company
whose stock he was short of ; and it is a very easy matter
to intimate or insinuate this to some friend of the holders,
who in repeating the same simply furthers the plans of
his friend's enemy.
The price of stocks is further influenced by the forma-
IQO PRINCIPLES AND PRACTICE OF FINANCE.
tion of "pools," in which a number of persons "pool''
their interests, join together, for the purpose of buying
or selling, and increasing or decreasing, the price of one
or more stocks. When the object is to increase the price
of a stock, they are called " bull pools," and when the
object is to decrease the price " bear pools." Naturally,
only persons having large holdings will join in a bull
pool, and those short of, or having no, or comparatively
insignificant, holdings, in a bear pool.
The method of operation depends largely upon the
stock and whether the pool is a bull or a bear pool. If a
bull pool, as much stock as can be is purchased for future
delivery. The sellers of this stock generally do not have
the amount sold, but expect to be able to purchase the
same before the date of delivery at a lower price than the
one at which they sold it ; a still hunt is then made by
the bulls and as much stock as possible bought, still for
future delivery, if possible. The pool now begins to buy
up the stock as rapidly as it is offered on the market, the
stock becomes scarce and the price advances, bids are
made in excess of the amount offered, and the sellers
who sold stock which they did not and do not possess,
" the shorts," now come in to buy, or " to cover," as it is
technically termed, but discover that there is very little
or no stock to be had, in which case they have either to
buy what little there is to be had, sending the market
still higher, or pay the purchasers, " the bulls," the differ-
ence between the price at which they agreed to deliver
and the price of the stock in the market. The success of
a bull pool is dependent upon the ability of the pool to
take all or a very large portion of the stock offered, upon
the condition of the property during the operation of the
pool, and to put the sellers, or shorts, in a position
where they are compelled to purchase from the pool at
practically the price it chooses to dictate, or at any rate
at a price which will leave the bulls a profit after all their
BROKERS. 19!
holdings have been disposed of. These pools are seldom
formed for other than speculative purposes, and seldom
have the money to buy all the stock for which they con-
tract outright. They generally operate with a stock of
medium issue, rather than one of either very large or very
small issue, as in one case the stock would probably be
too scattered and it would require too much money, while
in the other their design, on account of the limited issue,
would become apparent at an early stage, and their object
defeated.
A pool is generally managed by one of its members,
who has absolute power over the holdings of the others,
which are pooled and under his control. As a complete
record is kept of all bonds and stocks of every corpora-
tion on its books, and while, of course, the entries of
transfer do not always show the real owners, still a thor-
oughly posted operator can approximately determine what
portion of its securities are held for investment and what
are being actively dealt in on the exchange, and for ordi-
nary purposes only the latter portion need be considered.
Both the bulls and the shorts will do whatever they can
to influence the market in their respective favors.
A bear pool is formed and controlled in the same man-
ner, usually by persons short of a particular stock, who
sell stocks, not in their possession, for future delivery and
by their constant offerings to sell, seek to reduce the price
so that they may be enabled to buy at a lower price than
the price at which the stock has been sold. Inasmuch as
they have to keep selling to depress the market while they
are buying to fill their maturing contracts, as it would
never do to have all the contracts mature at the same
time, it requires most adroit management, as they must,
in order to be successful, sell on the market which they
have themselves lowered, and are compelled to keep on
hand a much larger amount than they buy in order to
make the pool a success.
192 PRINCIPLES AND PRACTICE OF FINANCE.
Note Brokers.
This is the name usually given to men whose business
is procuring the discount of commercial paper, notes.
For various reasons there are comparatively few men
engaged in this department of finance as compared with
the other departments ; and their dealings are largely re-
stricted to what are known as outside borrowers, borrow-
ers residing outside of the place where the loan is sought,
or who desire accommodation from other than their usual
banks or lenders, because most business men whose credit
is good can nearly always secure all the money they need
from the different banks in which they keep their ac-
counts, and it is only when a man wants to go beyond
this that he puts his paper in the hands of brokers, who
usually simply procure its discount by some one else, but
sometimes they buy the paper themselves, and either hold
it or re-discount it at a lower rate.
As a rule, however, they are simply middlemen between
the borrowers and the lenders, and receive a certain com-
mission from the borrower for procuring the discount.
People who have no regular line of accommodation at
one or more banks, or who have exhausted that line and
wish to place their notes somewhere else, should consult
the note broker.
Puts and Calls.
These words are so technical in their meaning as to re-
quire special explanation, which is best given by a state-
ment of the method by which this business is transacted.
Thus : A sells his agreement to B for a certain sum to
" put " to him at a given day at the price named in such
agreement a stated number of shares of a particular stock,
giving B the privilege of calling for the delivery at the
time and price agreed upon.
If the stock in the meantime goes down so that A can
purchase the same for a less price than the price at which
BROKERS.
193
he agreed to deliver it, B either pays A the difference be-
tween the price at which the stock shall be delivered and
the price at which the same can be purchased in the
market or receives the stock and pays therefor the price
agreed upon. In the event of the stock going up, A
either delivers to B the stock at the agreed time or price
or pays to B the difference between the price at which he
agreed to deliver the stock and its market price.
13
CHAPTER X.
Exchanges New York Stock Exchange.
Exchanges. Exchanges are meeting-places for per-
sons engaged in the buying and selling or exchanging of
commodities or values, or the titles to such commodities
or values.
The exchanges of the present day may differ in degree
but not in kind from the guilds of the Saxons, and the
meeting-places of the early merchants. Their growth has
been so gradual and imperceptible, keeping pace with
commerce, but never outstripping it, as to have occasioned
but little comment historically ; and while we are in-
formed that they were a well established part of the
commercial life of the Florentine period, and gradually
crept northward as the centre of commerce changed from
Southern to Western Europe, still in all the essentials
they existed, so soon as a large number of persons met
with any regularity at a specified place to exchange their
goods.
To the merchant or broker the exchange occupies in
one sense the same relation as the merchant or distributing
agent does to the producer and consumer. It is the me-
dium through which he is brought in contact with those
who desire to sell, and those who wish to buy, and he can
consequently either sell or buy as he wishes. The ex-
change saves him the trouble and loss of time necessary
to ascertain the person with whom he may exchange, just
EXCHANGES. 1 9$
as the country merchant saves the farmer the trouble of
rinding a purchaser for his wheat or cotton ; and as the
country storekeeper brings the manufacturer and the
farmer together, so the exchange brings the different
merchants together.
To realize the enormous saving of time and money and
the economizing of energy effected by these institutions,
let us for a minute suppose the business of a great com-
munity conducted without them, and each seller groping
around for a buyer, and the buyer searching for a seller.
Such a condition would be wholly incompatible with the
life of our century.
All of our cities, even the smaller ones, have their Boards
of Trade, and exchanges for the principal commodity
dealt in, and even our villages have what to them answers
the same purpose, some common meeting-place for buyers
and sellers.
The relative importance of the different exchanges is
usually determined by the sales, and naturally in different
sections and cities different exchanges become more or
less important than in others. Thus, in New York, the
Stock Exchange is the most important exchange, owing
to the enormous transactions annually effected, while in
Western cities exchanges for the sale of produce, and
in the larger Southern cities those for the sale of cotton,
are the most important.
In most of the larger cities all the chief trades and
businesses have their particular exchanges, where the
people interested in those trades meet.
Outside of a mere mention of the principles of ex-
changes in general, it is not within the purview of this
work, to deal with any exchanges but those relating
particularly to finance ; and as an illustration of the
workings of such exchanges, and because it is perhaps
the most interesting and generally discussed institution of
this kind in our country, we have decided to discuss
somewhat in detail
196 PRINCIPLES AND PRACTICE OF FINANCE.
The New York Stock Exchange. A voluntary un-
incorporated association founded in the year 1792, which,
after various migrations downtown, settled in 1867 in its
present magnificent home at 16 Broad Street.
There are entrances to the building on three streets,
the main one on Broad Street, access to which is had by
a flight of marble steps leading into a corridor, on either
side of which are elevators running to the upper floors,
where the bond room, library, executive offices, and the
offices of the clerks of the exchange are situated. These
elevators also lead to the Visitors' Gallery, which runs
partly round the main hall. On Wall Street, there is an
entrance used by brokers, but to a larger extent by sight-
seers, who go usually by this ingress to the gallery just
mentioned. On New Street there are two entrances, one
at the northern and the other at the southern end of the
building, which are used exclusively by members, their'
clerks, and the employees of the exchange.
All entrances lead to the " floor " of the Exchange,
which is on the level of Wall and New Street, but above
that of Broad. This " floor " is a large room almost
square, with a sort of a bay-window effect on the Broad
Street side, produced by the irregular extension of the
hall in that direction. Opposite this is a large board,
divided into different colored blocks, which blocks are
further subdivided into smaller blocks, each of which, in a
short time it will be discovered, discloses a number in the
same fashion as an hotel annunciator. The number so
disclosed is the number assigned to some broker or firm,
and indicates to him that some one wishes to communi-
cate with him. The board is in reality an annunciator,
and without some such contrivance it would be quite
impossible, owing to the noise and confusion, to secure
the attention of a broker on the floor.
Looking down on the crowd of brokers beneath, the
scene from the gallery is one which never fails to create
THE NEW YORK STOCK EXCHANGE. 1 97
a strong impression on the mind, and especially so when
the market is active, and there are hundreds of brokers
buying and selling. There is audible but one continu-
ous roar of voices, no one distinguishable from the rest,
although every now and then you may distinguish " five
hundred f ths, two hundred Jth," etc. ; the five hundred
and the two hundred meaning the number of shares, and
the J-ths or Jth representing the fraction of a cent at
which the stock is offered, no one deeming it necessary,
except in case of an unusual rise or fall in stocks, to state
the whole number of cents, as that is presumed to be
known by everybody on the floor. Nor is the name of
the stock called, the seller or purchaser simply goes to
that portion of the room where that stock is dealt in,
which place is marked by an iron stand supporting a pla-
card on which is printed its name. This, of course,
applies merely to the principal active stocks. There are
many stocks which are not active stocks, and which are
not dealt in to such an amount as to have any separate
place assigned to them, but are grouped with a number
of other stocks, in which case the broker announces the
name of the stock and the price at which he offers the same.
On busy days, from six to seven hundred brokers are
often on the floor at the same moment, some offering and
others bidding, waving their arms, gesticulating, and gen-
erally trying to attract the attention of some particular
person, or rushing about from crowd to crowd, and from
stand to stand, endeavoring to fill their orders.
The fee fixed by the Stock Exchange, which brokers
are to charge to persons not members of the Exchange,
is one-eighth of one per cent, of the face value of the
stock for buying, and the same for selling, so that to buy
and sell a stock it costs one-fourth of one per cent. The
rate below which no broker is allowed to deal with his
fellow-brokers is two dollars a hundred shares for selling,
and two dollars a hundred shares for buying.
198 PRINCIPLES AND PRACTICE OF FINANCE.
The 1 5th of September and Christmas Eve are days
which are not religiously observed in the Exchange, but
they are observed with equal regularity if less decorum.
White hats are considered especially unorthodox on the
1 5th of September, by which time every well-informed
broker is supposed to have accumulated sufficient worldly
goods to purchase a Fall hat, but if he has not, he cer-
tainly will have to buy one on margin.
Only citizens of the United States over twenty-one
years of age are eligible to membership, and are admitted
only after application to, and a thorough investigation by,
the Admissions Committee, and the payment for a cer-
tificate of membership which may have been purchased
from some other member of the Exchange, but no certifi-
cate is of any value so far as its use is concerned by the
individual purchasing it, until his application has been ap-
proved of by the Admissions Committee, and such mem-
bership must be held free and clear of all debt and liability.
The seat to which it entitles its holder is subject to sale
by the Exchange in discharge of the obligations of its
holder to other members ; any surplus remaining over
being paid to such holder or his legal representatives.
The owner of a seat may sell the same by nominating
a successor acceptable to the above-named committee,
This committee may, upon the death of a member, trans-
fer his membership, and after the Exchange has paid all
demands properly chargeable against the proceeds of such
transfer, it turns the remainder over to his heirs. On the
decease of a member, his family receives from the Gratuity
Fund ten thousand dollars,this being regarded purely as a
gift by the Exchange, and subject to no claims whatever.
All stock purchased or sold must be delivered between
1.15 and 2.15 P.M. If not delivered by the last-named
hour, the Exchange is notified, and demand is made for
the stock. All stock purchased must be paid for on
presentation, most houses requiring certified checks. It
is here that over-certification is greatest, many banks find-
THE NEW YORK STOCK EXCHANGE. 199
ing it necessary to so accommodate their broker custo-
mers, who almost invariably make good such over-drafts
before the close of the day, but certainly within a reason-
able time. The banks generally regarding such a check
as an implied notice of a deposit sufficient to more than
meet it, the stock itself, for which such check is given
often with more stock is deposited as collateral to make
good such check, and as this stock is generally by com-
mission houses bought for some one else, the check of
which purchaser will be doubtlessly received and de-
posited the same day, the banks really do not take as
much risk as is generally supposed when dealing with
reputable houses.
There are about eleven hundred members, and as the
seats are worth about $18,000 apiece at the present time,
the cost of these memberships alone represents something
over twenty million dollars. All the larger houses have
on the Exchange one or more members, or clerks.
Most of the principal operators and firms doing the
greatest volume of business are members more for the
sake of getting the benefit of the rates which brokers are
allowed to charge each other than for the purpose of
actually dealing themselves on the floor, as their presence
would often defeat the object they have in view. Nearly
all of their larger purchases and sellings are done through
other brokers : and it is a common thing for an operator
desiring to keep his identity a secret, or to mislead others,
to send some member, or some broker known to represent
him to sell a small amount of stock, while some other
broker, supposed to represent opposed interests buys a
large amount of the same stock for his account. But if
we should attempt to describe the various methods re-
sorted to to deceive and frighten the unwary, we would
have no room in this work for other equally important
matters. It is sufficient to say that the Wall Street
man is ingenious to a degree seldom paralleled in other
businesses.
CHAPTER XL
Corporations, Officers, Etc.
Corporations. Many enterprises, businesses, and in-
dustries require such a large amount of capital in their
organization and operation, as well as the certainty that
these operations will not suddenly be suspended by the
death of one individual, nor interfered with by the settle-
ment and division of assets rendered necessary by the re-
tirement of a general or special partner, and the public
interest in them is often so great, as to render their con-
duct by individuals not only inadvisable, but often
impossible.
To meet these objections, corporations, or companies,
associations of men for the prosecution of one or more
objects, are formed under the laws of different countries.
They are granted various privileges which neither are nor
can be given individuals, the chief of which is legal per-
petuity, or at any rate existence for a given time, if they
fulfil the requirements imposed upon them by the power
granting them their charter.
The object of their formation is not only to secure the
perpetuity of an enterprise, but to secure and maintain
sufficient capital to continue it when formed ; and this
can only be accomplished by making the shares of the
various persons interested easily transferable ; and defi-
nitely settling the proportion of their interests. Again,
many persons who would be glad to buy a stated
200
CORPORATIONS, OFFICERS, ETC. 2OI
interest, the liability on which was specified, in an enter-
prise, which interest they could readily transfer, would be
unwilling to become partners, either general or special, in
the same thing.
Corporations are formed to carry on all kinds of busi-
nesses and enterprises which men either individually or as
firms engage in, save generally those requiring the personal
rendering of technical or professional services, although
even this field is now encroached upon by the title
companies, which employ large numbers of lawyers whose
sole occupation is the examining of titles to real estate,
and also by dental companies employing a number of
dentists, and other novel corporate enterprises.
Companies are most commonly organized to conduct
industries of considerable magnitude requiring a large
capital, employing numerous hands, and possessing valu-
able franchises, usually derived from the Federal or State
governments.
The principal companies, generally speaking, are those
engaged in transportation, mining, and manufacturing,
and the transmission of intelligence, i. e., telegraph com-
panies, press associations, etc., although a great many
large mercantile houses have of late reorganized as cor-
porations.
We will take, by way of illustration, the case of a per-
son owning valuable mining lands, but without the capital
necessary to make them available and valuable. Assist-
ance from others must be had, and the most common
way of obtaining such assistance is by the formation of a
company by the owner of the lands, and the persons wil-
ling to furnish the capital, or so much of it as is necessary
to begin operations ; on the formation of such company
the- land owner transferring them to the company for so
much stock or money, and the people furnishing the
money receiving stock for the money furnished.
To a limited extent the same result may be attained
202 PRINCIPLES AND PRACTICE OF FINANCE.
by a partnership,. but if the amount needed is large, and
has to be subscribed by a number of people, it is found
that the partnership becomes unwieldy, and the interests
of the several partners difficult of adjustment.
Having brought together the persons desiring to form
such corporation, the next step is to proceed with the
organization, which is accomplished in substantially the
same way in all States, but the regulations, requirements,
and restrictions of many of the States differ, some being
more and others less severe. The laws of the same
State also differ with respect to the various kinds of com-
panies.
Before organizing, it is very important for the incorpo-
rators to decide upon the State under whose laws they
will organize, and a judicious decision on this point can
generally best be arrived at by following the advice of
some well known corporation lawyer.
Except in the case of companies which derive privi-
leges from the States where they operate, a company may,
as a rule, become incorporated under the laws of whatever
State it pleases, and the incorporation of a company under
the laws of another State does not exempt it from the
restrictions on, or duties to be performed by, like compa-
nies organized under the laws of the State in which it
transacts its business.
In all States the first thing to be done is to file with
the proper State officer, usually the Secretary of State, a
certificate of incorporation, stating the Act under which
the company is organized, if the character of the com-
pany is such that it can organize under a given Act
(some companies, being permitted only by special Act
of the Legislature to organize).
In the case of railroads and other corporations, organ-
ized by special Act of the Legislature, it is necessary to
secure the passage of such an Act before any further step
is taken, and then, if the company intends to operate in
CORPORATIONS, OFFICERS, ETC. 203
or through certain cities, a resolution or ordinance of the
Board of Aldermen, or the Common Council, or whoever
may have control of such privileges, and generally to fur-
ther obtain the consent of the property holders owning
two-thirds in value of the real estate in the streets of such
city through which the road will run.
While in the State of New York there must be remitted
with the certificate of incorporation a tax of one-eighth of
one per cent, on the capital stock of the company sought
to be organized, together with the fees charged for the
receiving and issuance of the necessary papers, in many
States no such tax is imposed, and only a charge by the
Secretary of State is made.
The importance of having the organization properly
incorporated and all the legal requirements attended to
cannot be too strenuously dwelt upon ; and good business
men have come to realize that the certificate of a well
known legal firm as to the clearness of the title, the com-
pliance with statutory legislation, and other legal require-
ments add a value to the securities of the company far in
excess of the cost of the services rendered.
A Certificate of incorporation must be filed with the
Secretary of State containing the name and object of the
company, the names of the directors for the first year
(usually chosen by the subscribers to the stock), the num-
ber of directors who shall thereafter govern, the amount
of capital stock, and the location of the company's prin-
cipal office, to which is usually added a provision for the
increase or decrease of capital stock. The payment of
the tax, which is levied upon the proposed capital of
most companies, should usually accompany the cer-
tificate.
Under the laws of none of our States of which the
writer is aware is a company required to begin operations
with the full amount of its capital stock paid in, except
in the case of trust companies of the State of New York.
204 PRINCIPLES AND PRACTICE OF FINANCE.
In most cases this would be an obvious impossibility,
owing to the inability of any man or number of men pla-
cing the stock and bonds of a company immediately upon
its organization. In fact, most companies reserve a por-
tion of their bonds and stocks in their treasury in antici-
pation of future needs.
Attached to the certificate of incorporation should be a
copy of the constitution and by-laws.
Companies operating in one State, but organized under
the laws of another, are required to name a resident at-
torney in fact, possessed of the usual powers given such
attorneys.
According to the laws of some of the States, the princi-
pal office of such company must be in the State under
the laws of which it is organized, where its books espe-
cially its stock and transfer books must be kept, but this
is not always so, especially in the case of West Virginia.
Companies organized under the laws of the State of New
York are required to have a certain per cent, of their
directors, according to the character of the corporation,
residents of the State.
Privileges or concessions are usually granted upon cer-
tain conditions, varying according to the character of the
company, the nature of its business, and the source from
which they are received.
As to the distinction between and the rights of stock-
holders, and bondholders, and stock and bonds, see Chap-
ter XIV.
Officers. A few suggestions as to the duties of the
President, Vice-President, Secretary, and Treasurer of a
Corporation.
In order to conduct business with dispatch and cer-
tainty, and to enter into contracts which will be binding
upon both parties, it is necessary not only that a person
having dealings with corporations should have some
knowledge of the powers of the officers of such corpora-
CORPORATIONS, OFFICERS, ETC. 2O$
tions, but also that the officers themselves should know
the extent and limitations of their powers and duties, so
that they may exercise these duties and powers within
their legitimate range. It has, therefore, been thought
wise to make a few general comments on this subject.
The President, as the head of a corporation and its
chief officer, would naturally be spoken of first, though in
some cases instead of a President, a Corporation or Com-
pany is managed by Commissioners or a Committee who
may or may not have a Chairman, but, as a general thing,
each Corporation has its President.
Before proceeding specifically to enumerate the duties
of these officers, it is well to state that their powers are
usually prescribed by the Constitution and By-Laws of
the Company which they serve ; in some companies the
powers of the officers being very great and in others more
limited. And while in some cases the duties of one officer
are assigned to some other officer, notably in the case of
the Secretary and Treasurer, yet as a rule the officers
subsequently named have substantially the following
duties assigned them.
President. The President is always a member of the
Board of Directors or Trustees, and usually its Chairman.
He is vested with power to enter into and sign contracts,
deeds, agreements, and various other legal documents by
direction of the Board of Directors or Trustees.
He is expected to be present and preside at all meet-
ings of the Board of Directors and Stockholders. To
him is entrusted the general management of the Company
and the employment of its subordinates. Other officers
who employ clerks or laborers derive their power from
him.
All important documents with the Company should
bear the signature of the President.
Vice-President. The Vice-President, in the absence of
the President, performs the duties assigned him ; but
206 PRINCIPLES AND PRACTICE OF FINANCE.
when the President is present, the Vice-President's duties
are principally those of an assistant to the President, al-
though, in large corporations Vice-Presidents usually
have charge of some particular department.
Secretary. The Secretary's duties are confined princi-
pally to the keeping of the records of the Company, con-
sisting of the meetings of the Board of Directors and
the meetings of the stockholders, the issuance of calls to
such meetings, and the submission of the Annual Re-
ports placed in his hands to the Board of Directors and
the stockholders ; to the conduct of the correspondence ;
and he is generally called upon to attest all documents
signed by the President, to sign the bonds and coupons
attached thereto, certificates of stock, and to see to the
transfer of stock certificates, and to attach the seal of
the Corporation to all contracts requiring such seal.
Under the By-Laws of many institutions the Secretary
is made Assistant-Treasurer, so that in the absence of the
Treasurer he may perform the duties pertaining to that
office.
The office of Secretary and Treasurer are also fre-
quently combined, in which case, in addition to the duties
above enumerated, he discharges those duties which the
Treasurer is usually called upon to perform.
Treasurer. The Treasurer is more particularly the
financial man of a company, and under his direction are
kept the books, showing the assets and liabilities of the
Company, and its general business transactions. It is
his duty, with the direction of the Board of Directors, to
designate a bank in which the funds of the Corporation
shall be deposited, and therein to deposit them.
He is also required (by most companies) to counter-
sign all contracts, checks, notes, and other evidences of
debt or promises to pay, which have to be signed by the
President.
General Manager. The General Manager, while not
CORPORATIONS, OFFICERS, ETC. 2O/
necessarily a member of the Board of Directors, and sup-
posed to be subordinate to the President, is perhaps the
one officer with whom the public deals most directly, and
Avhose power it is most important that they should under-
stand.
His power, as stated, is derived principally from the
President as under the constitution of most companies
the General Manager is appointed by the President, but
when appointed by the Board of Directors is answerable
to them. In such case his duties and powers are pre-
scribed in the By-Laws.
It is ordinarily safe to assume that the General Mana-
ger has power to enter into contracts for supplies and
such material as is legitimately needed in the opera-
tion of the particular business under his control, and to
make agreements for the employment of clerks and
laborers and others necessary to the operation of the
company.
In the case of a contract involving a large sum of
money, or one which it is not commonly known that the
General Manager has power to bind the company upon,
it is wise to have the same ratified and confirmed by the
President. There are, however, certain contracts and
deeds which even the President has not the power to
enter into, these, as a general rule, are contracts dis-
posing of some portion of the assets or franchises of the
company, the power to dispose of which rests with the
stockholders only.
The issuance of new stocks or bonds can only be
legally done by the direction of the stockholders.
In many companies, while the President and Treas-
urer finally sign a contract, still their power is limited,
and they are only empowered so to do after the passage
of a resolution to that effect by the Board of Directors.
Of course, it is obviously impossible to give more than
the briefest outline of the duties of the various officers of
208
PRINCIPLES AND PRACTICE OF FINANCE.
a corporation, and when a person is in doubt as to the
ability of a particular officer or of particular officers to
bind a company, it is always best to consult some repu-
table attorney in respect thereto, because there is no
greater source of litigation than the repudiation of con-
tracts by corporations, the defence almost invariably set
up being that the officer exceeded his power.
CHAPTER XII.
Stocks, Bonds, Warrants, and Receivers' Certificates.
No work on Finance would be complete without some
treatment of this subject, and while it is a rather recent
development of finance, it constitutes to-day one of its
most important divisions. The size of this book, how-
ever, permits only of a very brief discussion of the sub-
ject.
As certificates of stock or shares are written evidence
of the rights of their holders, transferable on sale or regis-
tration, and bonds are subsequently issued by authoriza-
tion and direction of these holders, we will follow in our
treatment of the subject, this order.
Before proceeding to a particular consideration of
stocks and bonds, it seems necessary to say a word as to
the necessity of their issuance.
One of the objects of incorporation is to afford the pub-
lic an opportunity to subscribe the requisite capital for
the organization and operation of an enterprise, and after
the purchase of its plant and franchises partly if not
wholly by the money paid in by the shareholders, it issues
its bonds, secured by a mortgage on its assets, or some
part thereof, with which to secure whatever money may
be needed for its further completion and operation.
Stocks.
Shares, in the United States generally called " Stock,"
are certificates issued by a corporation, certifying that
the person in whose name they are written and stand
209
210 PRINCIPLES AND PRACTICE OF FINANCE.
registered on the books of the company, is entitled to
a portion of the corporation's profits, to the right, by
vote, to participate in its management, and, according to
the character of the shares, liable to assessment for its
debts. It must be borne in mind, however, that all stock
is not registered, nor is all assessable. The shareholder
is, for the time being, a limited partner in the enterprise
by which his shares are issued, but this interest is more
readily transferable, and his rights having been previously
determined, are more easily disposed of, than in the case
of an ordinary special partnership interest.
While all shares entitle their holders to a certain pro-
portion of the net earnings of the corporation, it must be
remembered that these earnings can only be computed
and distributed among the shareholders after the payment
of all obligations of the company, such as operating ex-
penses, fixed charges, etc., inasmuch as the shareholder is
regarded in law as a partner in the enterprise, and there-
fore the last person entitled to share in the distribution of
its assets. Bondholders, on the contrary, are creditors
of the corporation, having loaned or advanced it money,
receiving as evidence of such loan, a bond secured by a
mortgage on the property and earning capacity of the
company. Because of this liability of the shareholders (in
the case of assessable shares) and their position as special
partners, they are given the control of the company,
whereas the bondholders being in the position of lenders
or creditors of such corporations are not generally ac-
corded any voice in the management of a solvent com-
pany, although there are being issued by some few
corporations, bonds giving their owners certain rights of
participation in the corporate management in the event of
certain contingencies arising. This, however, is in direct
contravention of the principles upon which shares and
bonds are issued and held, and is not, therefore, very
popular or resorted to often.
STOCKS, BONDS, ETC. 211
The rights and liabilities of shareholders are determined
not alone by the language of the share, but also by the
statute law of the State or country from which the cor-
poration issuing such shares derives its powers.
Having broadly defined shares we must now proceed to
a more specific consideration of their different kinds, the
six principal kinds being: 1st, Assessable ; 2d, Non-Assess-
able ; 3d, Preferred ; and 4th, Common ; and all shares
belong to one or more of these kinds. A 5th kind of
share, known as Cumulative, is issued, and a 6th, Non-
Cumulative.
Assessable. The stock of many corporations under the
laws of the United States and the States, under one of
which they must organize, is made assessable ; thus the
shareholders of national banks are made liable to the
amount of the value of their stock to the creditors of the
bank. In other words, a holder of $100,000 of the shares
of a national bank would be liable to assessment to that
amount in addition to the application of the money paid
in for the purchase of the stock. Many transportation
and industrial companies issue assessable stock, and a
purchase of this stock in any but a sound and well-man-
aged corporation is attended with considerable responsi-
bility. The limit of assessment, however, in all cases is
100 per cent, upon the face of the shares. Assessable
stock may, instead of being an asset of its holder, become
an actual liability, on account of the responsibility as-
sumed in the payment of assessments, and it often be-
comes impossible to give it away.
In case of the insolvency of a corporation issuing assess-
able stock, bondholders and other creditors may institute
civil actions to recover their pro rata contributions from
each holder of assessable stock.
Non-Assessable Stock. No explanation is needed as to
the character of this stock. It carries with it all the rights
and privileges, but none of the liabilities and responsibili-
212 PRINCIPLES AND PRACTICE OF FINANCE.
ties inherent in an assessable stock, and the utmost obliga-
tory loss that can be sustained by its holder is that of
the amount paid for the stock. The holder of non-assess-
able stock, however, may, in common with other holders,
voluntarily consent to the payment of an assessment for
the purpose of putting the corporation issuing the stock
in a better financial condition.
Preferred Stock. Preferred here means that the stock
so called has a preference over other stock in the payment
of dividends. It does not affect the general character of
the stock, which may be assessable or non-assessable, cumu-
lative or non-cumulative. The effect of the word is simply
to entitle the holder of such stock to be the first to par-
ticipate in the net earnings of the corporation. This stock
is also further divided into first, second, and sometimes
even third preferred, all of which come before common
stock. All stock, however, generally has the same voting
rights, although occasionally where a special guarantee is
made the preferred stockholders, putting them in the
peculiar position of being partly owners and partly credit-
ors of the' corporation, they are deprived of the right to
vote, and the controlling power is exercised solely by
the common shareholders. But the dividend to which
the preferred stockholders may become entitled is gener-
ally specifically stated, and any surplus remaining after
such payment goes to the common shareholder. In a few
isolated cases of extraordinarily successful companies, it
has been found that, after the payment of the specified
dividends to the preferred shareholders, the amount re-
maining as a dividend to the common shareholders was
so largely In excess of the dividend payable to the pre-
ferred that provision was made that after payment of a
certain dividend to both preferred and common share-
holders the balance should be divided equally between
them. The value of the preferred, as well as all other
stocks, may be seriously impaired, not only by the incur-
STOCKS, BONDS, ETC.
ring of floating debt, but by the making and issuing of
bonds secured by mortgages ; but inasmuch as these
bonds and other debts can be incurred and the obligations
can be ratified only by the action of the shareholders,
through their representatives, the directors or trustees of
a corporation, attempts on the part of shareholders to re-
pudiate such obligations have almost invariably been ren-
dered futile by the decrees of our courts, because even
though the issue of such obligations should be proven to
be fraudulent, the innocent holder should not be made to
suffer for such wrong, but the agents of the shareholders
who exceeded or abused their powers might be held
accountable.
Common Stock. After pointing out the distinction
between preferred and common stock, which necessarily
involved an explanation of the right of the common stock-
holders, little need be said in this regard.
While the common shares are the last to participate in
the distribution of the net earnings of a company after
the payment of accrued indebtedness, in exceptional cases
where these net earnings are very large and a limit is
placed on the dividends payable on anterior stocks, the
common becomes more valuable than the preferred.
Cumulative. A cumulative stock is one on which the
corporation agrees to pay dividends past due and unpaid
before declaring a dividend on stocks coming after it in
the distribution of net earnings, and is necessarily a pre-
ferred stock, to that extent at least.
The cumulative feature of a stock at best can only be
effective as against subsequent shareholders, as all accrued
debts of the company must be provided for before either
present or past dividends can be declared. The cumula-
tive feature, while it adds an additional value to preferred
stock, to the same extent lessens the chances of participa-
tion in earnings by the common stock, and hence decreases
its value.
214 PRINCIPLES AND PRACTICE OF FINANCE.
Non-Cumulative Stock is stock without this provision
for the payment of past due dividends.
Unless specifically stated, the dividends on a stock are
non-cumulative, and in the case of' the issue of only com-
mon or capital stock this cumulative provision would be
of no effect in any event, because the shareholders could
at best do no more than participate in the final net earn-
ings, and even without a cumulative clause, if those final
net earnings were sufficient to pay past due dividends,
could declare the same ; unless restricted by law, as some
of our corporations possessing valuable franchises from
States and cities have been, from declaring dividends in
excess of a certain percentage per year, although this
restriction has been generally avoided by the issue of an
amount of stock sufficient to bring the dividends within
the maximum rate which the law permits to be declared.
Thus, if after paying all fixed charges a corporation with a
capital stock of $10,000,000 should have final net earnings
of $i ,200,000, and the law prohibited the declaring of a divi-
dend in excess of 6 per cent, on the stock of the company,
by doubling the amount of its capital stock it would then
be enabled to pay just 6 per cent, and thus come within
the restriction of the law. Various laws have been enacted
looking to the prevention of what is known as the water-
ing of stock, even going to the extent of compelling the
corporation to reduce the charge for its commodities or
services ; yet so long as such corporation is able to declare
a fair dividend on its issue of stock, so long will there be
a market for that stock.
In the absence of governmental restriction as to the
amount of dividend paid, it sometimes happens, in the case
of very successful corporations, that their stock becomes
more valuable than their bonds, the bonds being a fixed
charge the interest upon which is specified, while the divi-
dends upon the stock may amount to a larger percentage
of interest than that paid on the bonds, besides carrying
with it the control of the company.
L
STOCKS, BONDS, ETC. 21$
Common stock is sometimes given to purchasers of
bonds as a bonus, and of course carries with it the right
to participate as shareholders in the management of the
corporation.
Promoters Shares. Promoters' shares are issued by cor-
porations in payment of the services of the promoters in
the organization of such companies. The issue of this
stock, while quite common in England, is very infrequent
in this country, payment being usually demanded by our
bankers or promoters either in money, mortgage bonds,
perferred, or common stock. A promoter's share is
entitled to participation in the final net earnings of a
company only after payment of all accrued obligations,
including the establishment of any sinking fund or surplus
which either the articles of incorporation or the constitu-
tion and by-laws or the bonds or mortgages provide for ;
but, as it is entitled to absorb the final amount remaining,
in the absence of provision in the other stocks to the
contrary, after the above payments they sometimes be-
come very valuable.
Dividends. Dividends, it must be remembered, stand to
the stockholder in the same relation that the division of
the profits of a private business do to the partners therein,
consequently they should only be declared, and can
legally only be paid, after the payment of all accrued in-
debtedness, including the setting aside and creation of
any fund or funds which the corporation binds itself to its
creditors to create and set aside.
Stocks are sold " dividend " or " ex-dividend." When
a dividend is declared a day is fixed for the closing of the
transfer books of the company, after which date no trans-
fers can be made until the books have been reopened.
On the morning of the day that the books are closed the
stock is sold on the New York Stock Exchange " ex-
dividend " an amount equal to that of the dividend
declared being deducted from the price at which the stock
would ordinarily be sold. It is needless to say that this
2l6 PRINCIPLES AND PRACTICE OF FINANCE.
applies only to sales on the exchange, as a private
purchaser can stipulate that the dividend be included, or
not, as he chooses the result, however, being practically
the same.
Guaranteed Stock. Stocks of subsidiary, auxiliary,
leased, or rented properties are often in fact generally
guaranteed by the principal company. Usually in case of
lease or rental, however, only the interest is guaranteed
by the lessee company, unless it be a lease for a period
which means practical ownership or control, when both
principal and interest are guaranteed.
In the case of a leased company such a guarantee con-
stitutes a claim which must be paid even before the fixed
charges of the lessee company. The default of payment
abrogates the contract, with the institution of such penalty
against the guarantor as may be stipulated. Thus often
companies which were at one time very prosperous are
dragged down by the weight of guarantees on securities
of their connections or branches which were hastily and
unwisely taken into their systems.
Trust companies and bankers are frequently appointed
as the fiscal agents of corporations for the purpose of
registering and certifying to the regularity of the issue of
stocks.
A brief explanation of such terms as " Assented " stock,
" First Assessment paid," etc., is desirable. Stocks thus
designated usually remain in the hands of holders, and
their character is only so far changed as indicated by the
words which are stamped or written upon them. This is
done by the trustee. In cases where an assessment is
found necessary, the holders of the security assessed are
requested to bring such security to the firm, bank, or trust
company having the matter in charge, and have them
certify by stamping or writing upon the security that the
assessment has been paid. The same applies to the assent
of security holders to any plan for merging them into, or
STOCKS, BONDS, ETC. 21?
exchanging for, other or new issues. They are thus
stamped in order that they may be distinguished , from
others which have not paid the " assessment " or " as-
sented " to the plan, as it will readily be seen that the
compliance with the terms proposed in either case may
affect the market values of the securities to a considerable
extent.
The exchange quotations distinguish such securities by
prefixing the abbreviations " 1st (or 2d) Asst. pd." or
" Assented," as the case may be. There are many other
conditions under which bonds and stocks are stamped, in
order to signify their acceptance of various propositions.
The above instances are merely cited as illustrations.
Bonds.
The following observations on the above subject will be
confined entirely to government and corporate bonds.
A bond is an instrument by which the maker binds him-
self under certain conditions to the performance of some
particular thing. Government, State, or municipal bonds,
properly so called, are seldom secured by a mortgage on
anything beyond a certain portion of the taxing power of
the maker, which may be pledged to the holder for the
payment of the interest and principal of such bond. Vil-
lage, town, district, county, and State warrants partake of
the nature of bonds, and, in common with bonds issued by
municipalities and States, are known as Investment Securi-
ties, and will be treated of under that head, to which the
reader is referred.
Corporate Bonds. The bonds of corporations are com-
monly known as mortgage bonds, and are secured by a
mortgage upon its entire plant, franchises, and assets, or a
portion thereof, the exact portion of which is or should be
always stated in the mortgage to which the bond refers.
Attached to these bonds are coupons payable at given
periods, generally semi-annually, stating that the holder is
2l8 PRINCIPLES AND PRACTICE OF FINANCE.
entitled to the interest then falling due. This is very con-
venient, as the coupon containing the number of the bond
and signed by the proper officer or officers, without the
presentation of the bond itself, shows the holder of such
coupon to be entitled to the interest in it named, and of
course is transferable on delivery.
A corporate bond, in common with all other bonds, is
a written evidence of the obligation of the corporation to
perform certain acts therein named in consideration of the
payment to the company of a specified value (it is not in-
tended to convey the impression that bonds are always
sold for the amount stated on their face, they sometimes
being sold at a premium and other times at a discount),
for which the bond is a receipt, and a bondholder, conse-
quently, is in the position of a creditor of the company,
which, until the payment and cancellation of such bond, is
indebted to him for the payment for which the bond is a
receipt.
The rights of bondholders are determined by the lan-
guage of the bond, as well as by the language of the
mortgage securing the same, and the laws governing the
issue of such bonds.
At the present time a mortgage securing the payment
of corporate bonds is usually placed in the hands of a
trustee, generally some trust company, which is supposed
to act in behalf of the bondholders as a unit, and which is
empowered by the language of the bond, in the event of
the failure of the corporation to perform the obligations it
assumes in said bond, to foreclose the mortgage and divide
the proceeds of sale among the bondholders.
The practical question, and the one which really regu-
lates the amount of the issue of bonds, is the ability of
the company to finance or place them on the market.
Where the bonded indebtedness is in excess of the value
of the mortgaged property and the earning capacity of
the corporation, it is much more difficult to secure pur-
STOCKS, BONDS, ETC. 21$
chasers than where the mortgaged property and the earn-
ing capacity forms an ample security for such bonds.
The laws in most States are designed especially for the
benefit and protection of .the public from the usurpation
of power by corporations, and as in many companies
especially railroad and telegraph companies valuable
franchises are afforded them by the government, it in
turn restricts the exercise of those franchises and limits a
corporation in various ways, too numerous even to sug-
gest here, and it is very essential to a determination of
the value of either a share or a bond to know, first, the
power given such corporation, and next, the legal limita-
tions and restrictions upon the exercise of its corporate
powers.
It must be borne in mind that bonds can only be issued
by the consent and direction of the shareholders, because
of the fact that their property becomes mortgaged in pay-
ment of such bonds, making them necessary parties.
Bonds of corporations constitute a variety of obliga-
tions, and are widely different in character and value. In
the case of railroads, bonds are issued against the main
line and branches, against the securities in their posses-
sion, against its rolling stock and equipment, and against
its present or future earnings. In some cases bonds are
secured by little, if anything, besides the promise and
ability of the issuing corporation to pay.
The bonds of gas, telegraph, and electric companies are
somewhat less complex and fewer in kind than those
issued by railroad companies.
The denomination and nature of a bond, name of com-
pany issuing same, rate of interest, kind of coin in which
it is to be redeemed, and the date of payment of principal
are generally stated in its title, thus :
" $1000. Railroad Co. First Mortgage, 5 % Gold Bond, Due
1903."
220 PRINCIPLES AND PRACTICE OF FINANCE.
Also the name of the guaranteeing company, when the
bond is guaranteed by another company.
Among the kinds of bonds dealt in on the New York
Stock Exchange are the following : First Mortgage Bonds,
Second Mortgage Bonds, Third Mortgage Bonds, First,
Second, and Third Consolidated Mortgage Bonds, In-
come, First, Second, and Third Preference Bonds, Col-
lateral Trust Bonds, Debenture Bonds, General Mortgage
Bonds, Convertible Bonds, Sinking Fund Bonds, Improve-
ment and Extension Bonds, Car Trust Bonds.
First Mortgage Bonds. As the term implies, these
bonds constitute a first lien upon the property of the
company which issues them, that is, upon all property
actually owned by the company at the time when the
issue is made. In case, however, of the future absorption
of other properties, a question naturally arises as to the
right of the bondholders under the clauses generally con-
tained in first mortgage bonds, constituting the bond a
first lien " upon all property now owned or hereafter ac-
quired," etc. When this provision is made there can be
no doubt as to the rights of the holders of the first mort-
gage bonds, provided that in future acquirements of other
companies the property of such companies has not been
placed under a mortgage issued prior to its absorption.
In the latter case the previous mortgage existing on the
property acquired cannot be superseded by that of the
company which absorbs it. Thus, in the case of many of
the larger railway systems, we see mortgages which one
not familiar with the properties would assume to be a first
lien upon the entire plant, but which are really a first
mortgage on only a portion of the system.
Second and Third Mortgage Bonds, in view of the
above, need no description here. The claims of holders
under these mortgages naturally coming in proper se-
quence. It is scarcely necessary to add that when such
mortgages exist the interest thereon is paid after that of
the first mortgage has been satisfied.
STOCKS, BONDS, ETC. 221
Consolidated Mortgage Bonds are generally issued to
take up and fund the prior bonds existing on one or more
parts of a system, but unless they possess a greater mar-
ketable value than is possessed by the bonds they are de-
signed to replace, the holders of the other bonds will not
part with them. A consolidated mortgage bond can only
become a first lien on the assets and earnings of a prop-
erty by the retirement of prior mortgages. Many com-
panies, in issuing these bonds, retain in their treasuries a
certain portion for the purpose of retiring previous bond
issues, but as these prior bondholders are under no legal
obligation to make such exchange, so long as they refuse
so to do consolidated mortgage bonds constitute only a
subsequent lien on the property and earnings.
Second Consolidated Bonds are issued by some corpora-
tions, and their bondholders are subsequent lienors to the
first consolidated bondholders, in the same manner that
the second mortgage bondholder comes after the first
mortgage bondholder.
Income Bonds. As indicated by their name, are usually
secured by a mortgage on the earnings or income of a
corporation after the payment of prior claims thereon.
When secured by collateral they are known as " Collateral
Income Bonds." Being frequently issued without a mort-
gage or some actual present security for their ultimate re-
demption, a sinking fund oftentimes is created for that
purpose. These bonds are frequently nothing more
than a promissory note of the issuer, with coupons at-
tached, bearing a certain rate of interest payable at a
specified date, in which case they are wholly dependent
for their marketable value upon the earning capacity of
the company.
Income bonds, in common with all other bonds, being
a prior lien on the earnings of a corporation to that of any
stock, often seriously decrease the value of such stock by
diminishing the amount of earnings applicable for divi-
222 PRINCIPLES AND PRACTICE OF FINANCE.
dends thereon. In the case of St. John vs. Erie Railroad,
it was sought by the preferred stockholders through the
courts to compel the road to continue the payment of
dividends on their stock, but the Court took the ground
that the preferred stockholders, having voted for the in-
curring of this obligation, having ratified the action of the
Board of Directors, and having used the money for bet-
terments, i. e., for their own benefit, were estopped from
disclaiming the obligation, and that dividends on their
stock could only be paid after the payment of interest on
these bonds.
Collateral Trust Bonds. As their name implies, these
bonds are issued against collateral deposited with a trus-
tee (most commonly some trust company), giving the trus-
tee power to sell the collateral and redeem the bonds upon
failure of the issuer to fulfil the conditions undertaken.
Collateral trust bonds consist of two sorts ; first, the
" Collateral Trust," where specific collateral is placed in
the hands of a trustee to insure the performance by the
corporation issuing these bonds of the payment of interest
and principal when due. This collateral cannot be changed
or converted. And secondly, *' Convertible Collateral
Trust Bonds," in which collateral is placed in the hands
of the trustee for the same purpose as in the case of col-
lateral trust bonds, but which collateral may be exchanged
or converted at the option of the issuer with the consent
of the trustee or bondholders. The collateral deposited
to secure both bonds usually consists of the securities of
other companies possessed by the issuers of such bonds.
Often, in addition to the collateral deposited with the
trustee, a mortgage is made of a certain part of the prop-
erty and assets of the corporation and given as further
security.
For several reasons a convertible collateral trust bond
would seem to be a more desirable bond than an in-
convertible one, first, because the inconvertible bond is
STOCKS, BONDS, ETC. 22$
secured by an unchangeable security which may depreci-
ate in value, when the holders of such bonds could not
call upon the issuers to deposit further security, nor by
the terms of the bond and mortgage could the issuers
take advantage of any increase in the market value of the
collateral, to dispose of it to their own or the bondholders'
benefit. Of course it is true that in the case of converti-
ble collateral the security is subject to the same deprecia-
tion, but here advantage may be taken of any appreci-
ation in the collaterals, and other collaterals greater in
value may be purchased,, or should the collateral be sold,
the proceeds of such sale can be deposited with the trustee
to take up a certain portion of such bonds. Convertible
collateral bonds frequently contain a provision giving the
company the right to redeem them at a given price after
a certain number of years.
The value of a collateral trust bond, either convertible
or inconvertible, like that of any other bond, depends
upon the collateral by which it is secured and the earn-
ing capacity of the issuer. These bonds are frequently
issued upon the absorption by one corporation of one or
more smaller companies.
Debenture Bonds. A debenture bond is difficult to de-
fine exactly. It is generally considered to be little more
or less than a note given by a company a promise to
pay. In the case of the debentures issued by the Chicago
& Northwestern, due 1909 and 1933, respectively, and pay-
ing 5 per cent, interest, it is provided that " any future
mortgage of the company, excepting any mortgages for
the enlargement, betterment, or extension of the com-
pany's property, shall include these debentures."
A debenture bond may be a general lien on the prop-
erty of a company, and like an income bond it generally
contains specific provisions for liens on certain property
and assets of a company, subject to the rights of prior
mortgages.
224 PRINCIPLES AND PRACTICE OF FINANCE.
In some States, where the laws in regard to mortgages
are onerous, a debenture is issued by a company in prefer-
ence to a second or third mortgage. As will be seen in
the case above cited, they are also, in some instances, pro-
tected from being superseded by future mortgages, and
must be included therein. Debenture bonds frequently
contain a sinking-fund clause.
Like all other obligations, their value depends upon
the character and standing of the corporations issuing
them, and while in some cases they may represent little
or nothing, when issued by companies of high standing
they are desirable investments.
These bonds are also largely issued by mortgage and
debenture companies, and are generally secured by the
placing of mortgages given to the issuing company to
secure loans on real estate, in the hands of a trustee,
and constitute the collateral on which these bonds are
issued.
General Mortgage Bonds. As the name implies, they
are a general mortgage on the property of a company.
Like a consolidated bond, they may be a first lien on one
portion of a system, a second on another, and so on. The
value of a bond of this character can be ascertained only
by knowing to what extent prior mortgage liens exist, and
the value and earning power of the property by which it
is issued and secured.
Sinking Fund. Provision may be made in any bond
for the creation and accumulation of a sinking fund with
which to redeem such bond at maturity. This fund is
generally accumulated by the setting aside each half year
or year of an amount equal to a certain per cent, of the
issue of bonds which it is created to pay. It constitutes
a contract on the part of the issuer with the lender, is an
obligation as binding upon the issuer as provision for the
payment of coupons, and must be provided for out of the
earnings of the company.
STOCKS, BONDS, ETC. 22$
Redemption before Maturity. A clause reserving to
the company the right to redeem after the expiration of
a certain time and before maturity may be incorporated
in any bond.
Many bonds, on account of the incorporation of these
various features, can hardly be designated as belonging
to a particular class, but partake in some respects of the
nature of several different classes of bonds.
Improvement and Extension Bonds. These bonds are
issued against improvements, betterments, additions, ex-
tensions, etc. In the case of extensions they may be a
first lien upon the extension itself. They are guaranteed
by the company under whose name they are issued.. Some
of these bonds, when they represent the outlay of money
for permanent improvements and betterments, are con-
sidered an excellent investment. On the other hand, as
is too often the case, unfortunately, bonds of this class
are issued to cover expenditures which, properly, should
have been chargeable to " operating expenses," and were
not so charged by reason of reckless or incompetent
management.
Car Trust Bonds. These bonds are secured by a mort-
gage on the cars of the company named therein, and in
case of the failure of the maker to meet the payments or
perform the obligations therein incurred, the holders may
seize the cars thereby mortgaged. They are generally
issued by Car Trust or Rolling Stock companies.
Remarks. In the foregoing pages we have endeavored
to give a brief description of the bonds principally dealt
in on the New York Stock Exchange and among financial
institutions and investors. It is not our province to de-
fine the exact legal status of the different kinds of bonds ;
that can only be determined by experienced lawyers.
The exact rights of the holder of a general or consoli-
dated, an income or debenture bond, depend upon many
circumstances and conditions, the laws of the State or
226 PRINCIPLES AND PRACTICE OF FINANCE.
States under which the mortgagor is organized, the
amount covered by prior mortgages, and the provisions
of the bond itself.
Many bonds partake of the nature of several classes
thus a First Consolidated Sinking Fund, a General Con-
solidated. A General or an Income Bond wherejio sec-
ond mortgage exists on a property may be practically on
the same footing as a second mortgage on another prop-
erty. In many cases a first mortgage is little better than
worthless in other instances a Debenture Bond may sell
at a premium.
Some of our large corporations have so great a mania
for issuing new obligations that it becomes difficult to in-
vent a proper title for all of their bonds. It may be stated
as a general rule, however, that very few corporations, and
none of high standing, issue bonds which in their nature
conflict with one another; thus we seldom see a consoli-
dated mortgage bond and a general mortgage issued on
the same property, or second and third mortgages where
a consolidated, a collateral, or a general mortgage exists.
In the first place the laws of many States seek to prevent
confusion of rights ; in the second, and what is more im-
portant to the companies, the investing public will not
purchase at a good price securities on whose title a cloud
rests.
Certificates of Indebtedness (Floating Debts). Certifi-
cates of Indebtedness are frequently issued by corpora-
tions as evidence of their floating, accrued, unfunded
debts. The holders of these certificates possess a claim
on the property and assets of the company for the amount
stated in such certificates, and if it is not paid within the
time named they may apply for the appointment of a
receiver.
Trust Company Receipts, Certificates of Deposit, etc.
Trust Companies' receipts and certificates of deposit,
although securities which are of a temporary nature, re-
STOCKS, BONDS, ETC. 22J
quire a brief description, as they are often listed, bought,
and sold on the Stock Exchange the same as securities of
a more permanent nature.
The certificates of deposit usually represent the deposit
of securities under some plan for the readjustment, con-
solidation, or reorganization of properties, such securities
being held in trust until the same has been effected.
The receipt by the trustee to the depositor for the se-
curity deposited with it enable such depositor to avoid
the inconvenience and loss which he might suffer from in-
ability to use the security so deposited ; the title to such
security being transferable by the holder of the certificate,
or it may be used by the holder as collateral in the secur-
ing of a loan.
Receivers' Certificates.
Once a property is placed under the management of a
receiver, it is in the hands of the Court under whose
jurisdiction the receivership has been granted.
The rules which ordinarily apply to the financiering of
a corporation as regards its stock and bonds may, at the
will of the receiver, if approved by the Court, be set
aside. The receiver operates the property, under the
direction of the Court, for the benefit of its security
holders.
Receivers' Certificates are issued for the purpose of ob-
taining money for the company, and are seldom resorted
to except in cases of absolute necessity or of great emer-
gency. When a company is practically bankrupt and un-
able to either sell or obtain a loan upon its assets or
securities ; when its plant, or road-bed and equipment, as
the case may be, is in such condition as to render opera-
tion unsafe or impracticable ; or when payments for
rentals, loans, cars necessary to conduct traffic, etc., must
be made, otherwise involving disintegration of its system,
or still further and more disastrous losses in earnings, it
228 PRINCIPLES AND PRACTICE OF FINANCE.
then becomes necessary to issue these certificates. They
must be approved by the Court, and if objection is made
to their issuance by security holders, a hearing is granted
their attorney or counsel before such approval is granted.
When receivers' certificates have been duly approved
and issued, they take precedence over every other obliga-
tion of a company, first mortgage bonds included. They
constitute a first lien upon its earnings (excepting only the
wages of employees and necessary expenses of operation),
and upon its property.
In the face of any determined opposition from holders
of first mortgage bonds or other securities of the company,
and the submitting of evidence that such issue of certifi-
cates is unnecessary, their issue will hardly be allowed.
They seldom cover an amount large enough to jeopardize
or imperil the rights of bondholders ; and, as stated above,
are issued only to prevent further and greater losses which
would ensue from the lack of funds which they are in-
tended to raise.
These certificates, even when put forth by the receiver
of the most hopelessly overburdened and overmortgaged
company, are generally considered a perfectly safe invest-
ment by the most conservative financiers.
Investment Securities.
The United States, the different States, counties,
townships, cities, villages, and school districts issue bonds
payable at a specified date, on the principal of which in-
terest is paid at the rate therein specified. These bonds
are not secured by a mortgage on any real present value,
and their worth consists entirely in the ability of the
issuer through its taxing power to meet the obligations
incurred.
States and cities issue also refunding bonds, which are
bonds to refund either other bonds, or to secure funds to
provide for the payment of outstanding obligations. The
STOCKS, BONDS, ETC. 22$
Federal Government, State governments, city and county
governments have also in many instances issued bonds to
assist in corporate enterprises of a semi-public nature, such
as the building of bridges, the laying of railroads, the
erection of waterworks, etc.
Many cities issue bonds to provide for improvements ;
and some cities issue special assessment bonds, chargeable
against the abutting property. By way of illustration : if
they want to pave a street, or make other improvements
of a local character in a particular part of the city, the city
issues bonds chargeable against the property in the dis-
trict benefited, but not against the whole city ; the city
merely acting as agent for the collection and payment of
interest and principal.
Many of the States and cities issue Interest Warrants,
which are payable within a given time, bearing a specified
rate of interest, and are issued to provide needed funds.
These warrants are either paid at maturity or funded in
bonds by their makers.
CHAPTER XIII.
Commercial Houses Commercial Agencies.
Commercial Houses. In order to form any just esti-
mate of the financial operations of any large city, and in
fact of the financial institutions, properly so-called, there-
in, it is necessary that we should have some adequate
idea of the method by which the business of our larger
commercial houses is conducted. While it is true that
the great variety of business in which these houses are
engaged necessitates more or less change in detail, the
principles governing the management of the financial
part of their business is practically the same in all well
conducted houses.
It will be necessary, however, to give some brief outline
of the method by which, first, the indebtedness is created
by the selling of goods, before we come to the indebted-
ness itself, which constitutes the primary element in the
finances of a house, and leads to their first dealings with
financial houses. To proceed regularly, we will first con-
sider the system under which the house obtains possession
of the goods which it sells.
All large houses are divided primarily into what, for
want of a better word, will have to be termed " depart-
ments." One, the Buying Department, through which
all the goods sold by said house are purchased from vari-
ous sources, and the other the Selling Department. Both
of these departments, according to the magnitude of the
COMMERCIAL HOUSES. 23!
business, are of course further divided into sub-depart-
ments.
Buying Department. This department has charge of
the goods purchased by the house, and is usually presided
over by some member of the firm, who is supposed to be
particularly familiar with the character, quantity, and
quality of goods which have the readiest sale, and in
which the house most extensively deals. In this depart-
ment are employed numerous buyers, familiar with the
market prices of the particular lines of goods which they
have to buy, and whose duty it is to buy such goods as
their firm or house may from time to time require, at the
best possible prices, and, if occasion offers, to purchase
such goods at particularly low prices, in anticipation even
of the requirements of their house. These goods are, ac-
cording to the finances of the house or according to the
probabilities of immediate or remote sale, purchased for
cash or on time, it being the policy of most houses to pur-
chase for cash only those goods on which they receive a
discount for cash, or goods which always have a steady or
quick market. As a rule, thirty days is considered cash.
These goods, on delivery, are received by the house and
assigned to the different departments for which purchased.
Each department is charged with the amount of goods so
delivered, and credited with the amount sent out by them,
the difference between the price paid and the price re-
ceived for such goods showing the profit or loss of that
department.
Selling Department. The business of most of the
larger houses is largely secured through travelling sales-
men, to each of whom a certain territory is allotted. It
is the business of these salesmen to travel from place to
place endeavoring to secure orders for such goods as their
houses sell, and not only are they credited with a com-
mission on all goods sold by them personally, but are
also generally credited with a commission on goods sold
232 PRINCIPLES AND PRACTICE OF FINANCE.
to persons residing within their territory. Some houses
employ travelling salesmen only on salary, others on both
salary and commission.
Of course all of the large houses have in their stores a
number of salesmen on salary, on whose sales no commis-
sion is allowed, with which the travelling salesman has
nothing to do, and in the amount of which sales he has
no interest.
Upon the receipt of orders not paid for in cash, either
from travelling salesmen or in the store, the order is sub-
mitted first to the Credit Department, which investigates
the standing, ability to pay, and general promptness in
meeting his obligations of the purchaser. This informa-
tion is usually obtainable from the mercantile agencies,
the chief of which are the R. G. Dun & Co. and the Brad-
streets, which publish periodically reports of the standing
of all merchants in the country whose assets exceed one
thousand dollars. -But as these reports are only published
quarterly, it often happens that the information given in
their publications is several months old, and more recent
information is desirable. When such is needed, the credit
department asks for a statement up to date of the condi-
tion of such purchaser, Avhich information is usually fur-
nished, but sometimes the agencies are necessarily delayed
in supplying it. A well-managed credit department will
not rely entirely upon the reports of mercantile agencies,
knowing that often the reports given to these agencies are
highly colored, and while not necessarily dishonest and
fraudulent, are liable to be influenced by the expectations
of the persons of whom such reports are desired, but will
make inquiry among the other houses which they think
have probably dealt with the purchaser, and if no satisfac-
tory information is obtained either from the agencies or
from their brother merchants, a letter is written the pur-
chaser, asking for letters of reference to persons with
whom he has dealt, and usually a letter is likewise written
COMMERCIAL HOUSES. 233
to the travelling salesman, asking for what information he
can furnish. If this information is not satisfactory, and
the ability of the purchaser to pay is doubted, a careful
credit department will immediately recommend that the
order be not filled, and this ends the matter. If, however,
the purchaser's credit is good, and his obligations are
promptly met, the order is next submitted to the order
clerk, by whom the prices at which the goods were sold
are approved, or not. If not approved,, the salesman is
usually called to account for selling goods below the
prices given him in his weekly price-list, which is compiled
by these order clerks under the direction of some member
of the firm ; or sometimes on their own responsibility
alone, and the order is filled or not, according as the
prices are acceptable or otherwise.
Assuming the price to be satisfactory and the credit
good, the order is next sent to the various departments
and the goods collected together in the Packing Depart-
ment, where they are packed for shipment. The packages
are then sent down to the Shipping Department, where
the shipping clerk ships the same to their destination.
From the various departments from which the goods
are drawn are sent to the Counting-House Department a
list of the goods, and these are entered and invoiced by
the entry clerks, who make up bills, which are mailed on
the date of the shipment of the goods or at the end of
the month, according to the practice prevailing in the par-
ticular house or the arrangement between the purchaser
and the seller. Next, the entries of the entry clerks in
total are entered to the debit of the purchaser by the
ledger clerks, in the ledger account of the purchaser.
At the end of the month, or at the time agreed upon,
drafts are drawn by the house upon the persons to whom
these goods have been shipped. These drafts, according
to the necessities of the drawer, are deposited for collec-
tion or discount in the bank with which such firm deals,
234 PRINCIPLES AND PRACTICE OF FINANCE.
and are there entered for collection or to the credit of the
house and sent by the bank to their different agents
throughout the country. Such drafts as are not paid
upon presentation are returned to the bank, charged
against the firm's account, if previously credited, and re-
turned to the firm, and have either to be made good by
the firm or are charged against their account, as stated.
Most of the large firms allow a small discount for cash
payments.
Commercial Agencies.
No more striking proof can be adduced of the change
in our business and financial methods from those prevail-
ing fifty years ago than the very existence of these agen-
cies, now so important a factor in our commercial life. Now
all careful business men make a most thorough inquiry in
regard to the standing of the persons with whom they
have dealings, and as this information is necessarily largely
supplied through the quarterly reports of these agencies,
and as business men know that any one withholding such
information from them simply injures himself, they are
themselves willing generally to give the agencies the
information sought about their business and finances.
In this country there are two principal agencies, known
in almost every village, with branch offices in every city
in the States, and also in all the larger towns. These com-
panies furnish, in addition to their quarterly publications
supplied each subscriber, information in regard to the
present standing of any person engaged in business in any
part of the United States or Canada. At stated times
they gather information as to the standing of persons in
their district, which in a condensed form is contained in
the agencies' periodical publications. Where later and
immediate information is needed they also obtain that,
and forward it to the ofHce or person seeking the same.
COMMERCIAL AGENCIES. 23$
Almost every trade also has its special agency, which
devotes its energies entirely to that particular trade.
Commercial agencies do not confine their attention
solely to the gathering and supplying of information, but
are also large collection agencies, besides which their
reports of the condition of business, crops, etc., etc., are
very generally relied on by both the public and the press.
Bradstreet's and R. G. Dun & Co. are the agencies re-
ferred to, each of whom have offices on Broadway, within
a couple of blocks of each other. They issue to their
subscribers quarterly a large book, conveniently arranged,
giving the names of all men in every part of the country,
doing a class of business in which they would probably
need credit, and giving their ratings, as indicating by let-
ters the amount a man or firm is worth is termed. Should
later information than that contained in the last publica-
tion be desired, either of these agencies will make every
effort to furnish the same to a suscriber.
While it may be said that credits extended nowadays
are largely upon the strength of these reports, yet most
of the wholesale houses and banks have credit depart-
ments of their own in charge of a man whose principal
business is to be thoroughly posted on the credits of the
people with whom they deal or are likely to deal, and
these " credit men " often seek information from each
other, when not satisfied with that given by the agencies.
Most large extenders of credit are subscribers to both
agencies.
The agencies require that books furnished subscribers
shall be used only by them or their clerks, and any infor-
mation furnished a subscriber shall be used only for his
benefit ; but these requirements are principally honored
in their non-observance.
To gather, arrange, condense, print, and disseminate
the information collected from every town and village in
the United States and Canada, and about almost every
236 PRINCIPLES AND PRACTICE OF FINANCE.
merchant or tradesman in each town, requires a vast num,
her of employees scattered all over the country, and this
each of the larger agencies has.
Should information furnished by an agency, except
where obtained from the injured person, be injurious to
the credit of a person, and such information be proven to
be false, the courts have held that he has a cause of action
against the agency for the damage he has sustained
through the injury thereby done to his credit. Or should
credit be extended on the strength of information given
by a commercial agency, which information was clearly
inaccurate, and the agent of such agency could easily have
discovered it to be inaccurate, the agency can be held for
the damage thereby suffered.
CHAPTER XIV.
Transmission and Remittance of Money Money Orders Cheque Banks
Commercial Bills Cable and Telegraph Transfers.
Transmission and Remittance of Money.
PERHAPS the greatest achievement of modern business
and banking is the safety and celerity with which money
can be transmitted from person to person and from place
to place, although, owing to the high state of develop-
ment of the financial systems of the world, the actual
shipment of money has been minimized to an extent that
but few of us realize.
While a great many transactions that once required the
shipment of money are now adjusted by bills of exchange,
yet there is still, especially in domestic transactions in-
volving small amounts, a necessity for the sending of
the money itself ; and the certainty with which a dollar or
a hundred million dollars may be transported has prob-
ably done more than anything else to steady and regulate
the finances of the world. In this certainty and quick-
ness of shipment the steam-engine and the telegraph have
been the most potent factors, the telegraph putting the
whole financial world in instant communication, the steam-
engine, with greater certainty than has ever before been
attained by human ingenuity, delivering the merchandise
of which the telegraph gave notice.
The ability of London, New York, Paris, or Berlin, or,
in fact, any other city to call upon other cities and coun-
237
238 PRINCIPLES AND PRACTICE OF FINANCE.
tries of the world for aid, and their power to instantly ex-
tend a similar accommodation, has been one of the most
important developments of modern progress, making the
financial transactions of the most widely separated coun-
tries almost as easy and certain of adjustment and settle-
ment as the transactions had between two bankers located
in the same city. One result of this rapidity and security
of transmission is that the cities or countries which have
large amounts of money seeking investment instantly
come to the aid of the countries in need of financial
assistance, the first desiring to buy and the second to sell
or borrow.
The issue of credits, exchange, is so intimately con-
nected with the actual shipment of money as to render a
separation of the two here undesirable. Nor is such sep-
aration at all necessary, as exchange has already been
treated, and only reference will be made to that part of
the transmission of money which is accomplished, or
rather the actual shipment avoided thereby.
First, as to actual shipment of money, by which is meant
the shipment from one point to another of the money
itself. This is done by the various steamship, transpor-
tation, and express companies in the same way that they
carry other commodities, only greater safeguards are used
to insure the safety of the money while in transit.
1. By registered letter. This is a letter containing the
money to be remitted, and is registered and receipted for
at the post-office. The receiver of such letter must
receipt for the same upon delivery.
2. By express companies, who carefully count the
amount of money to be sent, place the same in an envel-
ope, and securely seal the envelope with sealing-wax in
the presence of the person remitting. The envelope is
then sent to the person to whom addressed, who, upon
delivery, must receipt for the same.
The fact that express companies are known to be the
TRANSMISSION AND REMITTANCE OF MONEY. 239
carriers of large sums of money, and that those sums are
always in a particular car, leads to various train robberies,
usually at those seasons of the year when great amounts
are remitted from the Eastern money centres to the West.
It would seem to be safer to send money in ordinary
freight cars, where the location of the particular car, and
the box or bundle containing it, which need not be even
disclosed to the trainmen or conductor, would render its
transit much more secure than the present method,
although, of course, the objection would be that this
would consume too much time, and the money would be
earning no interest during its transit.
Payments are most frequently made, not by the ship-
ment of money, but by a transfer of credits. This has
been already dwelt upon at considerable length, and the
various ways in which credits are transferred will there-
fore only be enumerated here, and reference made to the
pages of this book setting forth the same more in detail.
I. By post-office order, commonly called money orders,
which are divided into domestic and international money
orders.
" The maximum amount for which a single money order may
be issued at an office designated as a * money order office ' is
$100, and at an office designated as a 'limited money order
office/ $5. When a larger sum is to be sent, additional orders
must be obtained. But postmasters are instructed to refuse to
issue in one day to the same remitter, and in favor of the same
payee, on any one post-office of the fourth class, money orders
amounting in the aggregate to more than $300, as such office
might not have funds sufficient for immediate payment of any
large amount. Fractions of a cent are not to be introduced."
The remitter who desires to relieve the payee or his
indorsee or attorney from the inconvenience of proving
identity at the office of payment, by the testimony of
another person, may do so, at his own risk, which waiver
is stamped on the order.
240 PRINCIPLES AND PRACTICE OF FINANCE.
"In the application the given names of the remitter and
payee, or the initials thereof, should precede their surnames,
respectively. If the payee has only one given name, it should
be written in full, if known to the remitter. For example, the
name John Jones should be so written, and not as J. Jones.
Observance of this rule will tend to prevent mistakes and delay
in payment."
" A money order must not be made payable to more than
one person or firm."
" Names of firms, places, and streets, as well as amounts,
should be written in full and in the plainest manner possible.
As in many cases there are several post-offices of the same
name in different States, the applicant should be very careful
to write legibly the name of the State in which the office he
means is located."
The payee named in the order may endorse it to
another, but more than one endorsement is prohibited.
These orders should be collected within a year from the
date of issue, to collect after which time it is necessary
to apply for a duplicate and again pay the amount of the
original fee.
FEES CHARGED FOR MONEY ORDERS.
For orders for sums not
Over $2.50 and not
" 5.00
" 10.00 "
" 20.00 "
" 30.00 "
" 40.00
*' 50.00 '*
44 60.00
*' 75.00
exceeding
exceeding
(4
II
" ]
$2 e.o .
:ents.
i
i
5.00 .
5
IO.OO .
8
20.00 .
3O.OO .
. 10
40.00
50.00 .
60.00 .
. 15
. . .18
. 20
75-OO .
25
:oo.oo .
?o
INTERNATIONAL MONEY ORDERS.
What has been said in regard to domestic money orders
applies, except as below stated :
MONEY ORDERS. 241
" Remitters will please take notice that the maximum
amount for which a money order may be drawn, payable in
the United Kingdom, Cape Colony, or British Guiana,
is $50."
" There is no limitation to the number of international
orders that may be issued in one day to a remitter, in favor of
the same payee."
11 The postmaster must refuse to issue an international order
payable to any person, if the surname and the initial letters of
that person's given names are not furnished by the applicant,
unless the payee be a peer or a bishop, in which case his ordi-
nary title is sufficient. If the payee be a firm, the usual com-
mercial designation of such firm will suffice, such as ' Baring
Bros.,' ' Smith & Son/ * Jones & Co.' "
Rates of commission, in United States currency,
charged for issuing all international money orders :
For orders for sums of $10 or less ..... 10 cents.
Over $10 and not exceeding $20 20 '*
" 20 " 30 30 "
" 30 " 40 4O "
" 40 " 50 50 "
" 50 " 60 60 "
" 60 " " 70 70 "
" 70 " 80 80 "
" 80 " 90 ..... 90 "
" 90 " " TOO ..... $I.OO *'
2. By check, either of an individual or bank, certified
or uncertified. (See Checks.)
3. By cashier's check. (See Cashier's Checks.)
4. By drafts. (See Drafts.)
5. By bills of exchange, domestic or foreign. (See
Domestic Exchange and Foreign Exchange.)
For large amounts this is certainly the method most
generally employed for the reasons stated in the chapters
devoted to those subjects.
16
242 PRINCIPLES AND PRACTICE OF FINANCE.
6. By certificates of deposit, receipts from banks or
bankers of the deposit of certain sums, made payable to a
person designated by the depositor, and payable at the
agency of the issuer. (See Certificates of Deposit.)
7. By letters of credit. (See Letter of Credit.)
8. By checks issued by the express companies upon the
plan described in the article on Cheque Banks.
9. In Great Britain and Canada by checks of cheque
banks. This method does not prevail in this country to
any appreciable extent.
Cheque Banks. Cheque banks operate almost exclu-
sively in England, where they were established more than
half a century ago. The object of their existence is to
furnish persons desiring to remit money other than by
post-office orders a convenient mode for so doing, the
bank issuing its check to the individual, payable to the
person named by him, upon the payment by the pur-
chaser of the amount of the check plus a small commis-
sion. The checks of these banks, whose business is
confined to the issuing of such checks, are largely used
by persons not having bank accounts and who cannot
therefore send their own checks, and who are not willing
to take the risk of sending bank notes, which at present
in England are not issued in denominations of less than
five pounds, and hence are not suitable for the payment
of smaller amounts. By way of illustration, a person
desiring to remit, say two pounds, will purchase at a
cheque bank their check for that amount payable to the
order of a person named, and mail the same to the per-
son to whom it is payable, who can cash the same not
only at any banker's, but, upon endorsement, at almost
any tradesman's.
After endorsement, these checks pass from hand to
hand, just the same as any currency. The check is so
prepared that it cannot be raised.
This system is very largely used in the British Isles,
COMMERCIAL BILLS. 243
and while at first it was unsuccessful, owing to inefficient
management, has since grown to enormous proportions.
These banks, however, would be of doubtful utility in
this country, and hence have obtained but little foot-
hold.
Commercial Bills. Next we will consider Commercial
Bills, which are drafts drawn by a person or persons in
one country on a person or persons in another, in payment
of merchandise received, held for account of, or in transit
to the persons against whom they are drawn.
These bills are either sent directly abroad for collection
or sold by the drawer to some dealer in exchange in his
city, most frequently the latter. The price at which they
are purchased by the dealers is governed by the condition
of the exchange market, and the length of time the bills
have to run. Those payable on sight are generally pur-
chased at the market rate for exchange, and those payable
on time at the market rate of the exchange, minus the
rate of interest prevailing in the country where such bill
is payable, from the date of its purchase to the time of its
maturity, which interest is deducted when the bill is
purchased. It follows that " time bills," as they are called,
are nearly always sold at a discount, as it very rarely
happens that the discount on exchange is so great as to
offset the interest charges.
These bills, when offered for sale, should always be
accompanied by warehouse receipt, showing the storage
of the goods against which they are drawn to the order of
the drawee, or bills of lading showing the shipment of the
goods to the person against whom the bill is made out,
otherwise the purchaser has no evidence that the draft is
drawn against any real value. The bill of lading or ware-
house receipt is delivered to the purchaser of the draft,
so that he may be in a position to enforce the payment
of the draft, or hold the goods, and sell them to reimburse
himself.
244 PRINCIPLES AND PRACTICE OF FINANCE.
Cable and Telegraph Transfers. The system of
the transfer of money by telegraphic order originated
during the late war, and at first was confined entirely to
domestic business. The inception of the system seems
to have been this : a person desiring to remit a sum to
another at a distant point, deposited the amount to be
remitted with a telegraph office and instructed them to
send an order by telegraph to their office at the desired
point to pay, to the order of the person named, the sum
of money deposited, the person named in such order
being also sent a telegram, to call at the office and receive
the same. This represents the simplest form of a transfer
of money, by telegram, and in this form the business is
carried on very largely by telegraph companies.
The availability of this method of transfer of money,
not only in domestic exchange, but also in foreign ex-
change, soon became apparent to bankers and commercial
men, and if it could be applied successfully by a telegraph
company for the transfer of limited amounts, it could
certainly be applied to greater advantage by large bank-
ing houses or bankers having on hand great sums of
money. Probably the next step in the development of
this system was the depositing of the actual money with
a banker selling telegraphic transfers of money called
" cables " and receiving his cable order on his correspond-
ent in another city, for the amount purchased, and also a
cable to the person in whose favor the order was drawn
apprising him of such order and directing him to call and
collect the same. Naturally such transfers are effected at
a charge proportionate to the rate of exchange then pre-
vailing to the point on which the transfer was issued, to-
gether with the cable and telegraphic charges necessary to
consummate such transfer.
Telegraph transfers (by which is meant domestic trans-
fers) are made either by the telegraph companies them-
selves of small amounts, and of larger amounts principally
CABLE AND TELEGRAPH TRANSFERS.
245
by banks, whereas cable transfers (by which is meant the
transfer of money to foreign countries) are effected
through exchange dealers, usually private bankers.
Most papers, in their commercial news, quote ordinary
exchange, commercial bills, and cable transfers. The
rates of all three differ for the reasons heretofore given in
this work.
CHAPTER XV.
Notes Endorsements Drafts Bills of Exchange Notary Presentation
Protest Notice of Protest Checks Course of Check through a Bank
Cashiers' Checks Certificates of Deposit Letters of Credit Table
Showing U. S. Treasurer's Valuation of Foreign Coins Table Giving
Weight of Alloyed and Pure Metal of Units of Value of Principal Coun-
tries.
Notes. A note is a written or a partly printed and
written promise made by one or more persons to pay to
one or more persons, named or unnamed, a certain sum
of money at a given date.
Bouvier's Law Dictionary defines a note as "A written
promise to pay a certain sum of money, at a future time,
unconditionally." This definition, however, does not
seem so comprehensive and explicit as that first given.
And as we are dealing with notes as negotiable instru-
ments, we will only consider them when drawn in such
form as to hold the maker thereof, for the amount stated
in such note, of which the very first element is that the
note shall have been given for value, hence all notes
should read " Value received."
The following is the form of note generally used :
"$ ........ NEW YORK ............. 188 ____
" ........ . ............ after date .......... promise to
pay to the order of ......................................
Dollars
value received.
No.. Due
NOTES. 247
It is a well recognized principle of law that a note given
without consideration cannot be 'enforced by a person
having knowledge of that fact, but a note given, though
without consideration, may be enforced by an innocent
holder, who purchased the same for a consideration.
Notes may be drawn by any number of persons, pay-
able to one or more persons, and are transferable by
endorsement.
Notes may be endorsed in some nine different ways,
each imposing a different liability upon the endorser or
endorsers thereof. The different kinds of endorsements
are stated with much brevity and clearness by Mr. Bolles
in his work on Practical Banking, which we take the lib-
erty of quoting.
" An endorsement may be (i) in full, or (2) in blank ; it
may be (3) absolute, or (4) unconditional ; it may be (5) re-
strictive ; it may be (6) without recourse on the endorser ; and
there may be (7) joint endorsements of the instrument, (8)
successive endorsements, and (9) irregular ones. An endorse-
ment in full mentions the name of the person in whose favor it
is made, and to whom, or to whose order the sum described in
the note is to be paid. An endorsement in blank consists
simply of the name of the endorser written on the back of the
instrument. * The receiver of a negotiable instrument en-
dorsed in blank, or any bond fide holder of it, may write over it
an endorsement in full to himself, or to another, or any con-
tract consistent with the character of an endorsement, but he
could not enlarge the liability of the endorser in blank by
writing over it a waiver of any of his rights, such as demand
and notice.' By an absolute endorsement the endorser binds
himself to pay on no other condition than the failure of the
prior parties to do so, and of due notice to him of their failure,
while a conditional endorsement contains some other condi-
tion to the endorser's liability. An endorsement may be so
worded as to restrict the further negotiability of the instru-
ment ; it is then called a restrictive endorsement. The words
248 PRINCIPLES AND PRACTICE OF FINANCE.
* for collection,' which are frequently written on notes that are
put in a bank to be collected render the endorsement restric-
tive. The endorser in such a case may prove that he is
not the owner of the note, and did not mean to give a title to
it or its proceeds when collected. Such an endorsement
merely makes the endorsee agent for the endorser in collecting
the note. The sixth kind is a qualified endorsement, or en-
dorsement without recourse. This consists in writing the
words 'without recourse,' or 'at the endorsee's own risk ' on
the back of the note. The endorser is then a mere assignor
of the title to the note, and is relieved of all responsibility for
its payment. A joint endorsement is made when a note is pay-
able to several persons who are not partners. Successive en-
dorsements are those made by several persons on a note, the
legal effect of which is to subject them as to each other in the
order they endorse. The endorsement imparts a several and
successive, and not a joint obligation. Lastly may be men-
tioned irregular endorsements, which may originate in various
ways. But in all cases an endorser guarantees the genuineness
of all the preceding endorsements."
It may be well to add that, in the use of irregular endorse-
ments, a person placing his name upon the back of a nego-
tiable note or bill is presumed, in law, to have intended to
become liable as second endorser, and that on the face of
the paper, without explanation, he is regarded as second
endorser and therefore not liable to the payee, who is
supposed to be the first endorser. The explanation re-
quired is that such endorsement was made for the sole
purpose of giving the maker credit with the payee.
Drafts. A draft is a written order drawn by one or
more persons in favor of one or more persons on a third
person or persons for a specified amount payable at a
named date.
On the next page is given the usual form :
DRAFTS. 249
" NEW YORK, January 10, 1893.
" $1000.
" Ten days after sight pay to the order of John Doe
one thousand dollars value received
and charge the same to account of
" Smith, Brown, <^ Co.
" No. 1043.
"To
" James Stimpson &* Co.
" Brattleboro, Vt."
The principal distinction between a check and a draft
is that a draft is generally drawn on some person or cor-
poration residing or doing business in a different place
from that in which the drawer resides, and is dependent
for its payment upon the acceptance of the person
against whom it is drawn, and who may decline to accept
or pay it, and no criminal liability would attach to the
drawer, whereas a check is drawn only against a deposit
of money or a previously agreed credit, and the drawer
of which, should there be no funds to meet it, renders
himself liable to criminal prosecution, or the bank or
banker refusing to pay such check if there are funds,
to a civil action for damages for the injury to the
drawer's credit and reputation.
After a draft is accepted it becomes a promise to pay
on the part of the acceptor, and he can be held thereon
as on a note.
Drafts constitute the most common form of domestic
exchange and are purchased by both individuals and
banks for that purpose.
They may be transferred to another by the person in
250 PRINCIPLES AND PRACTICE OF FINANCE.
whose favor they are drawn, by indorsement in any of the
different forms given in regard to notes.
When these drafts are drawn against a person to whom
merchandise has been sold or consigned they are known
as commercial bills. They sometimes take the name of
the produce which they are drawn against ; thus we have
" cotton bills " drawn against the sales of cotton, and so
on.
The persons selling or consigning the merchandise
draws his draft against the buyer or consignee, and with
the order for the merchandise, and the warehouse certifi-
cate or bill of lading attached to such draft (technically
known as " the papers "), offers the same for sale to his
bank, which purchases the same at the market rate of
exchange on the place at which the draft is payable, less
interest on the amount of the draft from the date of its
purchase to its maturity, which is deducted from the
amount paid over. The draft is then sent to its place of
payment for collection, and when collected the amount is
either remitted or credited to the bank. The same bank
will also sell exchange on the city at which its draft is
payable, but at a higher rate than it will purchase at, as
no bank can afford to sell exchange as cheap as it will
buy it.
The dealings in domestic exchange are confined almost
entirely to banks, whereas dealings in foreign exchange
are conducted almost entirely through private houses,
known as Dealers in Exchange.
Bills of Exchange. The chapter on exchange is de-
signed to give the principles governing exchange, rather
than the machinery by which such exchange is effected.
Hence it is necessary to say a few words about the papers
commonly used in the purchase and sale of exchange.
First will be considered bills of exchange, which are
used almost exclusively in foreign exchange, and of which
the following is the general form :
NOTARY PRESENTATION.
" NEW YORK, August i, 1893.
" Exchange for ;ioo.
:< Ten days after sight of this our First of Exchange (second
and third of the same tenor and date unpaid) pay to the order
of James Brown One Hundred Pounds sterling, and charge
the same, without further advice, to
"DREXEL & Co.
"To
" BARING BROTHERS,
" London.
" No. 420."
From the above it will be seen that these bills are
issued in triplicate, each copy bearing the same number,
and upon the payment of one the others are rendered
void. The reason for this issuance in triplicate is to pro-
vide against loss, two copies being sent, each by a different
steamer, or route, and a third retained by the purchaser.
These bills are also transferable upon endorsement as in
the case of notes and drafts, the person to whom the
same is endorsed, or the holder thereof for a considera-
tion, being the legal owner.
" Notary" Presentation, Protest, Notice of Protest.
In connection with notes, drafts, and bills of exchange,
it is very important that some general remarks as to the
due presentation, protest, and notice of protest should be
made. This necessitates some statement of the duties of
the " Notary."
Presentation. Banks, acting either as principals or
collecting agents, as a matter of courtesy and precaution,
generally give the makers of notes and the acceptors of
drafts and bills of exchange informal notice several days
before maturity of the time and place of payment of such
paper held by them, by mailing or leaving a notice to that
effect at the place where the paper is payable.
During the morning of maturity if such paper is not
252 PRINCIPLES AND PRACTICE OF FINANCE.
paid a formal presentation and demand for payment is
made by the bank or holder.
Protest. At the close of banking hours such matured
paper as remains unpaid is handed to the notary for pres-
entation protest and notice to the endorsers or drawers.
The notary should, irrespective of any number of previ-
ous presentations, again present the paper at its place of
payment before protesting the same. In New York and
Brooklyn, however, a number of notaries, particularly
those who are officers or employes of the banks for which
they act, make no personal presentation, and treating the
employes of the banks making formal presentations as
their clerks, rely upon such presentations for their protests.
In these cases the ordinary certificate of protest which
affirms a personal presentation by a notary is obviously
false, and, to conform to the facts, should be changed to
read " has caused the same to be presented," or it was pre-
sented, " by my clerk." In which latter instance, while
the protest is probably sufficient to hold an endorser or
drawer, proof of presentation can only be made by the
person who actually presented the paper.
Drafts or bills of exchange may and should be protested
immediately upon the refusal of the drawee to accept.
Notice of Protest. In the case of notes notice of pro-
test should be mailed or presented the day of protest or
early the next business day to the last and each preceding
endorser on the protested paper. While the notary has
discharged his duty by sending notice to the last endorser
only, and the preceding endorsers are thereby held, most
careful notaries send notice of protest not only to each
endorser, but to the last endorser copies which he may
himself send to his prior endorsers. In order that a sub-
sequent endorser may maintain an action against his prior
endorsers, he should immediately upon or early the day
following send a copy of such notice to each preceding
endorser.
CHECKS. 253
Where an endorser whose street address is unknown
resides in the city in which the paper is payable, notice
addressed thus, " John Jones, New York City, N. Y.," and
deposited in the General Post Office, is deemed sufficient.
Where the address is known or by due diligence can be
obtained it should be placed on the envelope.
In the case of drafts or bills of exchange notice of pro-
test should be mailed the drawer and endorsers as above
upon failure of the drawee to accept or pay the same.
It has been held in the majority of States, and may be
taken to be the law generally, that a notice of protest
deposited within the proper time in the General Post Office
is sufficient notice to charge the drawer or endorsers.
This is certainly the law in New York State. The denial
of the receipt of a notice of protest in an action on a
promissory note or draft clearly avails nothing. The
denial must be of the proper mailing or giving of notice.
Checks. A check is an order, usually on a banker or
bank, to pay either to the person in whose favor it is
drawn, or some subsequent endorsee the amount stated on
its face. Many checks, however, are drawn to " bearer,"
in which case the bank may pay the amount called for to
the person presenting the same without incurring liability
in the event of the wrong person obtaining the money.
The following is the form of check most generally used
in New York :
4< NEW YORK, January 2, 1894.
" No. 5 13-
" NATIONAL BANK.
" Pay to the order of RICHARD ROE
One Thousand Dollars.
" $1000.00.
"JOHN DOE."
254 PRINCIPLES- AND PRACTICE OF FINANCE.
Some banks, however, supply their depositors with
what is known as the Chicago check, on which the dollar
sign is placed at the end of the line beginning with the
words " Pay to the order of."
Richard Roe, in order to receive payment on his check,
or to enable another person to do so, must endorse the
check, by writing his name across the back of it. The
proper way to do this is to place the check face downwards
with the beginning of the lines pointed away from the
writer, and then write Richard Roe across the back well
toward the top, so as to permit of other endorsements.
As a rule, it is very unwise to endorse a check merely
with the name of the drawee, unless it is the object of
such drawer to have some person unknown to the teller
collect the same, in which event any person getting pos-
session of the check might collect the money. It is
preferable to endorse the check to the person whom it is
desired shall be paid, thus :
" Pay to the order of
JOHN BROWN.
RICHARD ROE."
or, if the check is to be deposited, it should be endorsed
thus :
" For deposit in Bank.
" RICHARD ROE."
Then should the check come into the possession of a
person not entitled thereto, this prevents him from getting
the money therefor.
The signatures on checks have been so often forged or
the amounts thereof raised that numerous devices and
precautions have been adopted to lead to the immediate
CHECKS. 255
detection of either, for neither can be prevented. Per-
haps the safest way to ensure the immediate detection of
the forgery is to have every blank check in the check-book
numbered consecutively by machinery; never draw a
check out of its regular order, frequently see that no
checks have been abstracted, and in case the stubs and
the body of the checks are filled out by clerks, sign the
checks before they are torn out of the book. Check-
books, when not in use, should be locked up in a safe or
some other secure place. The check . itself should be
always of tinted paper, so that if an acid is used to re-
move any portion of the writing that something else may
be substituted, the acid will take out the color along with
the ink and render discovery easy.
The method usually adopted in England to prevent the
removal of one word or figure and the substitution of
another is the employment of chemically prepared check
paper, in combination with a chemical ink, when, should
the figures or words written on the check be removed by
acid, the chemical ingredients of the ink as well as of the
paper, combined with the chemicals used to abstract the
words or figures, eat a hole in the paper and thus render
the insertion of other words or figures impossible.
Lines should be drawn from the end of the name of the
person to whom the check is made payable to the end of
the line, so as to prevent the insertion of the words " or
bearer." The same thing should be done in regard to the
line on which the amount is spelled out, otherwise it is
easy to insert some word raising the amount. Numerous
plans are tried to prevent the raising of checks. The
most common at present is to cut, with a machine con-
structed for that purpose, the figures representing the
amount of dollars called for, immediately preceded by a
dollar sign and followed by a period. This prevents the
insertion of any figure between these signs. The amount
of the cents is usually omitted.
2$6 PRINCIPLES AND PRACTICE OF FINANCE.
Another device is to perforate the figures stating the
amount with a stamp prepared for that purpose, which
renders it difficult to change the amount of the figures.
Nothing is so difficult to simulate as the natural hand-
writing, and any teller will say that strained and artificial
signatures, even when intricate and embellished with
many flourishes, are much easier to forge than those
written in the ordinary hand.
In reference to intermediate endorsements of a check,
while it is advisable that the receiving or paying teller, as
the case may be, should exercise care to such an extent
as to see that they have been properly made, and that the
check is rightfully in the hands of the person presenting
the same for payment or deposit, still it is not possible
that a teller should be acquainted with the genuineness of
each intermediate endorsement, nor is it necessary, as he
is not likely to pay a check to a person unknown to him,
and if the check is received for deposit and returned, the
depositor's account will simply be charged with the
amount of such check which formed a part of his credit.
Checks should be deposited for collection, or cashed,
certainly within two days of their receipt, and preferably
the same day, where possible, as procrastination in this
matter may render the collection impossible.
Persons receiving uncertified checks for large amounts
should take them immediately to the bank and have them
certified. Such checks are generally certified previous to
payment, and if not, as a rule should be.
Course of a Check through a Bank. The person to whom
a check is given presents the same to the paying teller for
payment at the bank, who, if the presenter is properly
identified, and the drawer's account shows a sufficient net
credit, pays the check, which is then charged upon a book
kept by him for that purpose, to the account of the
drawer, and is then handed over to a clerk who takes the
same, along with others, to the bookkeeper keeping the
CERTIFICATES OF DEPOSIT. 257
depositors' ledger in which the name of such drawer would
appear. The bookkeeper charges the same to the account
of the drawer and files the check. At the end of the
month or at some stated period when the drawer's passbook
is balanced, the amount of the check is entered on a slip,
on one side of which are the credits and on the other side
the amount of the checks drawn, which, along with the
checks marked " Paid " and the pass book in which the
balance is recorded, are then returned to the depositor.
Cashiers Checks. These are checks issued by banks
over the signature of the Cashier for the payment of the
sum of money stated therein. They are frequently pur-
chased by persons desiring to remit money, and constitute
perhaps one of the commonest forms of exchange. The
object of their purchase is that the check of a bank is a
more readily transferable instrument than the check of an
individual, even when certified. It is usually drawn upon
a particular bank, and the charge made therefor is the pre-
vailing rate of exchange upon the city on which it is
payable.
Certificates of Deposit. Certificates of Deposit are
often used as a means of transmitting money, and are, of
course, necessarily transferable on endorsement.
They are really nothing but receipts from banks that
certain amounts of money have been deposited, which
they will on demand repay either to the depositors or to
some person named in writing by the depositor on the
face of such certificate.
A certificate of deposit can also be made payable in
whole or in part at some agency of the bank, by the bank
directing such payment on its face.
This, however, is not a very frequent method of trans-
mitting money, being much more troublesome and no
better than a certified check. It is used mostly by peo-
ple who either do not have, or do not intend to keep in
the bank issuing the same, a regular account.
258 PRINCIPLES AND PRACTICE OF FINANCE.
The following is the common form of such certificate :
THE NATIONAL BANK OF
., Mass., i8/_
_ha__ deposited in this Bank
. Dollars
payable to the order of.
on the return of this Certificate properly endorsed.
No..
Cashier.
Letters of Credit. A Letter of Credit is a letter is-
sued by one or more persons, usually a firm of bankers,
addressed to one or any number of persons who may or
may not be named therein, authorizing them to pay to
the person or persons in whose favor it is drawn, the
whole or any part then due of the amount for which it
is issued, and guaranteeing the repayment to the persons
or firms making such advances.
The usefulness of these letters to travellers consists
in the fact that being drawn not against a single house,
but practically against every banker in the world, the
traveller is not compelled, as in the case of a bill of
exchange, to present the same at but one specified place
and receive the whole amount it calls for in one cur-
rency, but may present it wherever and whenever he
pleases, during the time for which it is drawn, and real-
ize on it the amount he may then need in the currency
of the country where he is, thereby entirely doing away
with the inconvenience and insecurity of carrying large
sums of money about his person, and avoiding the fre-
quent change from one currency to another, for which a
commission in the shape of a discount on the amount
paid is always charged.
LETTERS OF CREDIT.
Depending for their value, as these letters necessarily do,
upon the financial standing and reputation of the issuer,
whose credit to that extent has been purchased by the
holder of the letter, it is of the utmost importance that
these letters should only be purchased from firms of the
best and widest reputation, for while a less well known
firm may be equally sound financially, and the holder of
its letter have no difficulty in realizing on it from the
issuer's correspondents or where the issuer is known, still
such a letter could not be so generally used as one issued
by a better known house.
The following is the ordinary form of the first page :
CIRCULAR LETTER OF CREDIT.
No. g 11212.
o-/ etz.cn e^ii^^. mttid &e indcii/efd ort, &t& <&etc& of
v ft 11 ^K.
tAit te&et tana! to- tnid- i&6 w-fdSi. fa ^f$k*C Mo-ui. dfiecta./ tztte^io^. G/nid.
tettei. i&e& 4n.o4e.t& ve ce&n-cewed tzw&Qdtezcsi-eed to-
6ee to- it tneit tne-. e^&fa- &e j-itzneed in,
cc-mAt&te t&e dii&ntzttUe w^n^ trie
* * f
k cU ent/em, - ~
26o
PRINCIPLES AND PRACTICE OF FINANCE.
The second page, on which the amounts paid the holder
of such letter are recorded, is as follows :
Date
Name
Amount Paid
Amt.
When
By Whom Paid.
of
Expressed
in
Paid.
Town.
in Words.
Fig's.
Apr.
10
Brown, Shipley, & Co.
London.
Twenty-five pounds.
*s.
27
Credit Lyonnaise.
Lyons.
Ten pounds.
" 10
May
16
Munroe & Co.
Paris.
Fifty pounds.
" 50
Aug.
4
Knauth, Nachod,&Kuhne.
Leipzig.
Fifteen pounds.
" 15
100.
Attached to these letters, either as a third page, or as a
separate paper, is a list of the various correspondents or
agents of the firm issuing the letter. Along with each
letter goes a check book, the blank checks in which are
addressed to the maker of the letter.
It will be observed by glancing at the fac-simile given
above of one of these letters, that it contains the sig-
nature of the holder, which, of course, presents an easy
means of identification, as he thereby has in his possession
the thing by which he can always be identified. A fur-
ther and safer means, and one which should be adopted,
would be to imprint on each letter a photograph of the
person in whose favor it is issued.
These credits are not necessarily issued only to indi-
viduals, but may be issued to several persons.
Practically all sellers of these letters will issue them
upon a deposit of cash, upon guarantee of payment of
amounts drawn, or upon a deposit of marketable securi-
ties. On all letters for less than ^500 a commission of I
per cent, is charged. (These letters are nearly all drawn
in sterling, as that is the most generally used currency.)
Letters for a sum in excess of ^500 are issued against a
deposit of cash, without charge, but no interest is
LETTERS OF CREDIT. 26 1
allowed on the cash so deposited, unless the same exceed
1000.
In case the letter is issued against a deposit of securi-
ties, and the securities have to be sold to make good the
payment on such letter, the usual brokerage is charged,
or in case interest on the securities is collected, a charge
of one fourth of one per cent, is made for such service.
Whatever part of the amount for which the letter
is drawn remains to the credit of the holder is payable to
him on demand either at the home office or that of any
agent or correspondent.
The manner of using such letter is so simple as to
require but brief explanation. The holder, when in want
of funds, refers to the list of agents and correspondents
attached to his letter, selects the one in the place where
he may be, draws his check against the issuers of such
letter on one of the blanks furnished him in the check
book, presents his letter and check, and the check is
cashed in the currency of the country in which it is pre-
sented, and the amount in sterling is charged on the
letter.
Although it is preferable to present these letters to the
correspondents of the issuer, should there be none in the
place where the holder happens to be, he can procure
what funds he needs thereon from almost any bank or
banker.
The person or firm making advances on the letter,
writes the issuers thereof, mentioning the number of the
letter enclosing the check of the holder for the amount
paid, together with his or their charges, and the same is
remitted them.
Naturally, in the case of agents or correspondents who
pay a large number of checks on different letters, and
themselves draw letters on which the first house men-
tioned also makes advances, periodical statements are
made and balances remitted.
in
<u
c
0? r~ .
en
"d
00 >
rt
i
vn'C Q
CO O .
cf
*
1
g^ ? .52
S-
IT* *"S
u
^ 05 fe r^
lH
4J
'S M 2 ^
13
C
*3 t
'S
O o
^ o <N
S
d '!
CO > M "^
d
,
u
<J
.s
'o^'*?
cJ
^ s
N ' . VO cr" M
^^
.. c3
c
O^on^ ^ ^
^
<u
M x^^ | "^
^
"I
W3
OS
^^^ jj
S
5 tjQ
a
TH|OT
C ^^ S . . 4^
f*
.S
'o
T3
"C t/5 O ^ "55
o
1 1
U
i
^ g ^ c'
^0
3
^_^
Tt" ^ W 00 2 C/2
3 52
^
l^l .22 "53
52 ."
03
43
CO
a
S-d S 8^|
"S ^ "S^ CJ ,- Q
'> C1 * r d
.s
^ "i-d
G
i
B
"g 8 11
'e Sf
2
"S
^| 2 ^ '> *
o T? 5^
.
a,
hfi t^
O ^ ^ fXi c3 '-^ 2
M 5 M
HH
c
C8 o
..|4j"S^i
D Q
<U S-
T
25
.. .S
2 rS "3 ^
>
H
co"
8
^
6
-~oio
oj 13 r^
^ -3^
c O
04
o
S
5
c4
"JBTTOfT^
xo
CO CO M O
1-4 OI
MO W CO
I 1
2
PIO *s *n j
0^
N M rt ir> O
rf M"
O^f^ 0^2
<
fa
suiiajL ui snfBA
Q
H
.
"o
V)
.
. . . .
"o
rt
w
t3
i *
| |
."^
0)
*0
<
>
"S
\ ':
: \
|| |||
2'Su.s^
vr>
5"
*
\
rp WH ^"^E H O
N
,
.* j
si c
V .0
"
c
*
. (3
'.
V
54 ~~-
c o .2 *'
. "
^ S S
*
I
2 2^1 |
i i.
<U D
PH pin
'a
a
H
*$ S w
"* .3
j_
*
J
S^ t/3 '* J
^
<L) . , .
^
^ "i"
P (-H t/3
1
^
>
'. ~
fc c
'O
T3
73;; ;
"^
| <u.2
a
c3
" rt
~1
C/2
^ 5J Tj "-'
S T3
\
(U
PI
o ^
O
O O ^i O O
O O 35 U O
c^ O
c7
s IS
* " " * ' 1
^ A ^ '
^2 S^
J 3 os
;
: : : :
o
" JG ^ " -^
. . .
U 11
3
^ : : : .s i!
. . .
r"j 'S
hjj . D CU^^ tl
jf * !
ctf
C
.*j
< t/5 D r-- 03
H S5 wi rt
^ ** "^
S
(-H
3 ; ; o * c S
^V rt ^ ^ >H
o |I
( W
(S
D
J S * * ""C; , i
"^ s S ^^ ;
O
C -=3
c *~*
1
1 fill^^l
Ufflglj
1
W <*-
<
<< pq^ ^p; u
u
U
262
|
u
x
J: -"
c ~
o . .
^ '"
ei
rt
1
x
t-
c
o
o
a;
2
rt
1
X
e
(U
2
E,
\ft
c
rt
o"
o"
l-<
ir,
> i
C
-8
2
^ a,
in o
m So *-" '> ^5
"5 > 'S m
-g| |88 |;;
^y ,-i|M C/3 ^ -^
l'Sg.,18 | i
g.n S g'a g ^ ^
2 co o' 2 2 o" 2 o" <J
^in^^in .in
"O ^^ Hi r^ o
c ^Oflr : O ^ O M
- Jrt 'S "^ ^ "">
S 1 o" o" o o . fi -
i i
i i
~ CJ
1 . f
T3 ^ CO
2" s - ? ' ;
1H rj-
in en <f>
7f JJ>< . 9 . r^
CO
(U
pesetas. Silver : 5 pesetas,
ind 20 crowns.
o, 20, 50, and 100 francs. Silver : 5 francs.
50, 100, 250, and 500 piasters.
O, 20, 50, and 100 bolivars. Silver : 5 bolivars.
1
1
1
OJ
R. E. PRESTON, Director of the Mint.
c j~
o ~
c
8 1
&
- S " "^ " & 2 " 1 ^
*^ C< VO U"> ^5 ^^> ff W> M
f.lr.r.r.f-r!
f
in O - *n ~
IS
"5 "c
CO
^{
r
'o
O
1-1 "o 'o 'o 'o 'o ~ 'o "o "o -^
OOOOOcoOO Oco
13 > ^'o 'c 'o 'o -^ "3
O O O O O co O
'o -3
Oco
COO O O
OOO OO
c
e
o
s"
MO
X
en
co coco o co x/*> o co r^o
O^ OJ rfoo M t-i
d co
cnco enco <r en
rt
'o
o
-f CI
f,
-i-
3;
^^c?S M^a 2 s S^
81^, Q t i \c oo ^"OO
rt ^t o w o rr o
r-^ co
M w M en O M
0,
^
-fr
rf
W M M
.
o
"o
B '
c3
~
^
1
U
'::::: : : : :
*
c/I c/l
a. cu
c
U
CO
y:
rt
' ~
8
1
iiii! il
55 .s^| : j if
11
Oco
3
OH
. -H ^3 1* *lj
Illlll
0)
1
'rt
1
1?
^
^C
)er the actual curr
ii
:| : :|| | |
'. '. $>'..'.'.'.
S - : w
CO
9
-
</j en .in
"
OD
-d
^
M
CJ
c
* C ' ' C G C C
c c c
rt
^--
<U ^
,_:
_
^^.J^^aJ'S -S
^% ^^ % %r^
D
cJ oJ ^ ; ed
C
rt
M
1
< o
x O
_c
X
O
oooooo^o o
O O O O O O co O O
O ~ OOO '^'O
O co O O O co co O
CO
O O O ' O O
O O O co O O
'rt
3
2
^
g
. .
b
c
o
. . . . . . __
c
13
43
Colombia
Cuba. .
I )enmark . .
j
r- 1
iijJi*.* I
c I
Russia
HI t||
'o
O
|
1
a
^>
X
263
264 PRINCIPLES AND PRACTICE OF FINANCE.
The above table is issued on the first days of January,,
April, July, and October in each year.
The above table, it must not be assumed fixes the inter-
changeable market value of coins, it is merely a statement
of what the Federal Government estimates them as worth
for the purpose of valuing imports.
The value of gold coin to gold bullion is unchangeable so
long as the weight of pure metal in the coins remains the
same, and while the value of silver coin to silver must follow
the same law, the value of silver coin in gold bullion
changes so rapidly and the fluctuations are so great as to
necessitate a table showing the weight of pure metal in
coins in order to determine their value. With the weight
of pure metal known, and the gold price of silver per
ounce quoted daily in the newspapers, the gold value of
silver coins can be readily ascertained by dividing the
portion of an ounce which a coin weighs into the quota-
tion. The following table (No. 2, p. 266) gives the weights
of both alloyed and pure metal.
In United States money the value of an ounce of pure
gold is $20.67. To ascertain the value of any gold coin
divide the portion of an ounce it constitutes into 20.67.
The relative value of coins to each other can be deter-
mined in the same way.
The weights both of alloyed and pure metal given in
Table No. 2 are of coins as they come from the mints.
From a study of this table it will be seen that while
the names of the coins which are the monetary units in
different countries differ, they are in many cases of the
same weight and fineness. Thus in the case of France,
Belgium, Italy, Switzerland, and Greece, comprising the
Latin Union, in France, Belgium and Switzerland this
unit is the franc, in Italy it is the lira, and in Greece
the drachma. In none of these countries, however,
is the franc, the lira, or the drachma legal tender except
to a limited sum. The 5-franc, 5-lira, or 5-drachma piece
DECIMAL GOLD AND SILVER WEIGHT TABLE. 26$
(silver) is the lowest denomination of coin which is legal
tender.
In the case of Denmark, Norway, and Sweden, compris-
ing the Scandinavian Union, the krone or crown is the
unit, the gold coins are the 2O-crown and the lo-crown
piece, the silver coins are the 2-crown and I crown, the
50, 40, 25-, and io-6re pieces.
In Bolivia, the Central American States consisting of
Costa Rica,Guatemala, Honduras, Nicaragua, and Salvador,
in the U. S. of Colombia (in Ecuador, called the " Sucre "),
and in Peru the silver peso of 385.800 grains alloy .900
fine, or 347.220 grains pure silver, forms the monetary unit.
The weight, wherever obtainable, has been expressed
in grains, but in the currencies of France, Belgium, Italy,
Greece, Switzerland, constituting the Latin Union, and
Denmark, Norway, and Sweden, the Scandinavian Union,
the German Empire, Portugal, Spain, and Turkey it is
shown in grammes.
DECIMAL GOLD AND SILVER WEIGHT TABLE.
I Gram or 15.43235 grains
10 Grams I Dekagram = 154.3225 "
IO Dekagrams = i Hectogram = 1543.2348
jo Hectograms = I Kilogram = 15432.34874
Taken from The World's Metal Monetary Systems.
<S *
-*
S
3
g M
22 22
v: ^
PH
S -5 ^ *o
c c
G *" G "* J C
2 - - 5 2 * "*
e: : : ' :
S '* : : " V^
^O ^
> &3^ ; SB
W) CX^
t t o ^ ti)
t5
iiiiii j.
O m o O O O
M 1- M O MO
CJ 00 04 O MO
?i <N r^ o >nco ON O
"C4 i^.v3 rt- 1-1 r^O
^
bfl
r^ oi ^t* in r^o *
tA i-c' r-l co !-> cj
O r~-.'^-ONM ^-M co
t 1-1 T M -t M
1- M 00 M
^C
C*S M C<") M "^
co C4 co m co M
~ CO i-l M
^
S
i
unit
Oco 00
O O O ON O O
riM
s O r^ O O co O t '
D
ON ONCO ON O^CO ON ON
s
M
in
XJ t/J
in
-(-
(U
3
in g "3
t/J rj-
S 5 S 22
fcjO M
'&J : : -i
|
1- ^al, 1
CO t/3 rt
1- ftS. VR
1
W) O^ bfl,^ ^
b/) in ^ ^
c ^ SD" S^ . o^ N .
3
O m D ^T O CO H^
8c"o m^ J
CO COCO M CO r " O
1^0^?^ ^2^
C
<L> 0"^^ . CO ^
in in i/^ rt" o' '""*
^ . . i> ^ r^
'5
J^ o'S^
co coooo O^S mr^
co cx co m in o co '
^w * SSj-^
'fcjQ
C fl V3 ,-,
> rt "^ *7/]
"c ^
^ 43 , ^
'C
I? ! f
CJ
6 N_xO-
5 2 (fl
'S
o^ J?^ --
^Vo^ o ^9, 9,
^ -&M
-rO^y g ^ 5 ^
g^gg j jd
*
5
X-S 1 i-S
S|^">^ =
*$$ P
S-o g^Jig
<u c o , <u <u
PL, O P-" 13 PM PM
U cj
Jill 111
<< PQ
H
o . _T3 "cS
3 >," C 3 c3 r T
&
2
."
?
j
.si
3 '-"' .2 ^2 -H
^ s qj
& 1 So^- 1 $ Ss S3 of
p ^ -^
c
3
fc-H r-j i in ^ C -(
rt ^-i
X C "rrf
g
(L> h-i ^ o <! P^
>-< o rt
^^ ' 1-4 [T] *->
S ^ g rt ^ oL^ rt
'O *rt IS
"* fa ^ ^~^ i- 1 '^.
| jllllij^
IN i ii
glgl | 11
aj o bfl.s 2 <u i-
u u uu
Q W Wfe ^ UO
- 2
r- S
2 S
266
1
I-
|
M M S3 fl ^ BA JO f t/3 t/) t/J
O 'rt
2
&
d O
xn O
Tt in
t/3 ti) t/3 ^ to to to to to t/)
M O d O O O d ** x^> PI vO en O vn O^ ^t" vO O O d O O **- O M ^
OOxnOO r^ en co'i-enc v i ooNc^t-iMQc^Minoo >- ; <c x i u OP'
rj-o^J'"^'^" i-ien mxnOCM mMvOc^t^OC^PJ^-mM vOd -^ rfoo
t/3
i
d
ci O d t^* t^ s O d O en ^~ r*. t^* HH *i"\o d M d t^* c^ sC
M cncnen eni-idMen en en
<u
C
II
HS |
VO O O O O O O ^n O O O Q O O O Q O O O O *O O O O **">
O ^ O O O O O ^1" OO OOO*~ | OOOOOOO MQOO co
6
o
3
15
1-
2
W)
en O
o O
M xn
r
i=
Q
s~~*. . C/5
t/3 V) C __r-
-S tjo '3 , .i wi
: 1= l|s 1 g a8.|= |s 1 =
J^l^S'l "S o 5 ^ ^ .2 - ^'3 ^ < j& o'^S 2 3 g .2 <^^.
a)O M M > o O^M^y 10 SRo tr>M OtOJ3r-i.^j vO'/idX" '"^ SO ^
rno o l^ PHCO fli-^- ^DoOoo (Vxn c/3 "' " f^ 5 2
^ . a> o . ^^" ' en .JJ ^ o ON . T t - " . <u " C ^ n t^. 00 *
5 < -^ : "2 TO" ^ o- ON ^^ I^o'n^ ^2 : w _, uS'w 1 ^ :
.SMJ 2. TT ^ vO r ^ rr '^ k J M en ir>xr >2 o^dn-o
1 jj 1 | 1 1^- ii *^-
6-6 ,8 -*~ "-* I &.
4)
C
O
rt
g
1
Q
c/5 ^^
^ S 2 "c'-^ ^ c 5 o? S S -< *v oj>G^5 *
||a#22S a "S| "31 1| I *
O
o
* * ....
. * I I I
J
^^
i : : i 4 ^^
u
1
O
^s C ^* t) ^^
t3 * -0 -S ^ 5
si^a^l Hi- =!l llHl I 1
rt^ 13 M J ^<u 5 3 S 8 5 a S,^^'Cp: c S
EC HH HH 1 )l i S ?5 ^^PLiP-ipLHdHPH COC/iC/^E- 1 ^* H2 >
267
CHAPTER XVI.
Interest Grace Legal Holidays.
Usury, penalty of, forfeiture of
interest. Grace allowed. Legal holidays : Sundays, January 1st, February
22d, April 26th, July 4th, Thanksgiving day, Good-Friday, Mardi Gras,
and Christmas. If any of these days, except Mardi Gras, falls on Sunday,
the following Monday is the legal holiday. Paper entitled to days of grace
or subject to protest falling due on a holiday becomes legally due on the
next succeeding business day.
Arizona. Legal rate of interest 7 %. Contract rate unlimited, No
usury law. Protest unnecessary if suit is begun within sixty days of date
when payment is due. Grace allowed on notes and bills of exchange.
Legal holidays : same as New York, except first Monday in September,
and Saturday half-holiday. Paper falling due on holidays or Sundays is col-
lectible on the next business day.
Arkansas. Legal rate 6 %. Maximum contract rate 10 %. Usurious
contracts are void, both as to principal and interest, and negotiable paper
tainted with usury is void in the hands of an innocent holder. Judgments
bear same rate of interest as contracts on which they are recovered, 'except
judgments against counties which bear no interest. Grace, three days.
No holidays peculiar to the State. Notes and bills due on Sunday, Christ-
mas, and July 4th must be presented the business day previous. But notice
of protest need not be given until the day after such days.
California. Legal rate 7 %. Contract rate unlimited. Judgments bear
7 % interest. No grace. Legal holidays : same as New York, except Sep-
tember gth in place of first Monday in September, and no Saturday half-
holiday.
Colorado. Legal rate 8 %. Contract rate unlimited. County orders
and warrants draw 8 $, State warrants 6$. No usury laws. Legal holidays :
same as New York, except no Saturday half-holiday. Same provision as in
case of New York should holidays fall on Sunday, except that paper is pay-
able the previous business day. On notes and bills of exchange three days'
grace.
268
INTEREST GRACE LEGAL HOLIDAYS. 269
Connecticut. Legal contract rate 6 %. Usury, penalty, forfeiture of
interest in excess of legal rate to any one except the borrower suing within a
year. Grace, three days. When either day of grace expires upon a legal
holiday, the paper is collectible the business day preceding such holiday.
No legal holidays peculiar to the State.
Delaware. Legal and contract rate 6 %. Usury, penalty, forfeiture of a
sum equal to the amount lent. Grace, three days on all bills payable at a
future date. When third day of grace falls on a holiday or Sunday, presen-
tation and payment to be made the preceding business day. When holiday
falls on Sunday, paper maturing on Monday must be presented the previous
Saturday.
District of Columbia. Legal rate 6$. Maximum contract rate 10$.
Usury, penalty of, recovery of whole interest paid by action brought within
year after payment. Legal holidays : January ist, February 22d, Inaugu-
ration day (every fourth year), May soth, July 4th, first Monday in Sep-
tember, Thanksgiving day, and December 25th. Grace not allowed.
Florida. Legal rate 8 %. Maximum contract rate 10 %. Contracts for
more than 10 % void, interest forfeited. Double amount of interest over 10 %
paid to any holder may be recovered by maker from payee. Legal holidays :
January ist, February 22d, June 3d, July 4th, first Monday in September,
December 25th, Election days Federal and State, Thanksgiving day.
Negotiable paper due on holidays presentable and payable the preceding
business day. Grace not allowed.
Georgia. Legal rate 7 %. Maximum contract rate 8 %. Usury,
penalty of, forfeiture of excess of interest over 8 %. Judgments bear
7 % interest on the principal recovered. No grace on sight paper. Protest
unnecessary to hold endorser, except when payable at a bank or banker's
office, when grace shall be allowed. Legal holidays : January ist, January
igth, February 22d, April 26th, July 4th, December 25th, and other days
appointed by the President or Governor. Paper due on holidays to be
presented the preceding business day.
Idaho. Legal rate 10$. Maximum contract rate 18 %. Compound in-
terest allowed. Usury, penalty of, 10$ of debt. No grace. Paper due on
Sundays or holidays payable next business day. No special holidays.
Illinois. Legal rate 5 %. Contract rate 7 %. Usury, penalty, forfeiture
of interest. No grace on sight demands, three days on other instruments.
Legal holidays : same as New York, except no Saturday half-holiday. Paper
due on holidays payable preceding business day.
Indian Territory. Same as Arkansas.
Indiana. Legal rate 6 %. Maximum contract rate 8 %. Usury, when
paid, can be recovered from the payee. Grace, three days, allowed on all
paper. Legal holidays : same as New York, except no Saturday half-holiday.
Paper due on a holiday payable preceding business day.
270 PRINCIPLES AND PRACTICE OF FINANCE,
Iowa. Legal rate 6 %. Maximum contract rate 8 %. Usury, penalty,
forfeiture of 10 % of contract. Judgments bear rate of interest of contracts
on which recovered. Grace allowed. No special holidays.
Kansas. Legal rate 6 %. Maximum contract rate 10 %. Usury,
penalty, forfeiture of double the amount of all interest over 10 %. Grace,
three days. Legal holidays : Sundays, July 4th, December 25th, Janu-
ary ist, Thanksgiving. Paper due on a holiday is payable the preceding
business day.
Kentucky. Legal rate 6 %. Usury, penalty, forfeiture of excess of
interest over 6 %. Three days' grace. Paper due on Sundays or legal holi-
days payable preceding business day.
Louisiana. Legal rate 5$. Contract rate 8#, although parties may
agree to even a higher rate, which may be collected. After maturity of
obligation any stipulation for higher rate than 8 % forfeits entire interest.
Judgments bear rate of interest of the debts on which they are recovered.
Grace, three days, except on sight bills, on which no grace is allowed.
Paper due on a legal holiday is payable the next succeeding business day.
Legal holidays : January 1st, 8th, February 23d, Mardi Gras, 4th of March
in New Orleans, July 4th, December 25th, Sundays, and Good-Friday.
Maine. Legal rate 6 %. Contract rate unlimited. Judgments bear 6 %.
Grace, three days, except on demand paper. Paper, the last grace day of which
is on a legal holiday, is payable the preceding business day, except where
two holidays come together, the last of which constitutes the other grace
day ; or, if one of the other days falls on Sunday and is the second grace
day, four days of grace are allowed. Legal holidays : same as New York,
except Election days and Saturday half-holiday.
Maryland. Legal and contract rate 6 %. Usury, penalty, forfeiture of
excess over actual value of goods and chattels lent. Grace, three days.
Legal holidays : same as New York, except that Good-Friday is observed as
a legal holiday and the first Monday in September is not a legal holiday,
and no Saturday half-holiday. Paper due on a legal holiday is payable pre-
ceding business day.
Massachusetts. Legal rate 6 %. Contract rate on loans not in excess
of $1000, maximum 18 $, provided contract is in writing. Corporate bonds,
maximum 7 %. Three days' grace allowed on all paper in the absence of a
statement to the contrary.
Michigan. Legal rate 6 %. Maximum contract rate 8 %. Usury, pen-
alty, forfeiture of interest. Grace, three days, on all but demand paper.
Paper falling due on a legal holiday payable preceding secular day.
Maximum contract rate (when expressed
Interest in excess of 10 % or compound interest pro-
INTEREST GRACE LEGAL HOLIDAYS. 2/1
hibited. Usury, penalty, recovery of all interest paid in excess of 10 % with
costs of action if action is brought within two years after payment. Bonds,
bills, notes, assurances, conveyances, chattel mortgages, and other contracts
whereby a greater sum than 10 % is charged for the loan are void. This
does not apply in the case of unmatured negotiable paper. Grace allowed
except where stipulated to the contrary. No grace on demand paper. Ac-
ceptances must be in writing. Legal holidays : Sundays, Thanksgiving day,
Good-Friday, Christmas day, New Year's day, 22d of February, 4th of
July, or the following day when any of the above named days falls on Sun-
day. Paper falling due on a holiday becomes payable and notice of protest
shoulo* t>e given the preceding business day, but notice of dishonor, non-
payment, or non-fulfilment may be given the business day succeeding such
holiday.
Mississippi. Legal rate 6 %. Maximum contract rate 10 %. Usury,
penalty, forfeiture of interest. Notes not considered protestable paper.
Bills must be protested. Legal holidays : Sundays, July 4th, Christmas
day, Thanksgiving, and New Year's.
Missouri. Legal rate 6 %. Maximum contract rate 8 %. Judgments
bear rate of interest of contracts on which recovered. Open accounts bear
6 % interest from time of demand to payment. On contracts bearing usuri-
ous rate only legal rate is recoverable and defendant is allowed costs of
action. No grace allowed on sight bills or orders. No written assignment
of a note or bill is necessary to entitle the holder to sue. Legal holidays :
January 1st, February 22d, July 4th, Thanksgiving day, general Election
days, December 25th, and Sundays. Where a holiday other than a Sunday
falls on Sunday, the Monday following is observed as a holiday. Paper due
on holidays or Sundays is payable the succeeding business day, unless such
holiday be a Sunday, when the paper becomes due the day previous.
Montana. Legal rate 10 #, which is the rate collectible after debt is
due. Contract rate unlimited. No usury law. Three days' grace allowed
on bills and notes except when the last day of grace falls on a Sunday or
legal holiday, in which case payment must be made the preceding business
day. No grace on sight diafts or checks.
Nebraska. Legal rate 7 %. Maximum contract rate 10 %. Judgments
bear same rate of interest as contracts upon which they are recovered.
Usury, penalty, forfeiture of interest. A note bearing 10 % from date to
maturity and 24 % from maturity until paid not deemed usurious, the 24 %
being regarded as a penalty of non-payment. Compound interest allowed
upon provision to that effect in the paper. Grace, three days, on all but de-
mand paper. Legal holidays : same as New York except no Saturday half-
holiday and the addition of April 22d as a holiday. Same provision as in
New York in regard to paper due on a holiday.
Nevada. Legal rate 7 %. Contract rate unlimited. Interest allowed
only on original claim. Grace not allowed.
2/2 PRINCIPLES AND PRACTICE OF FINANCE.
New Hampshire. Legal rate 6 , Usury, penalty, forfeiture of three
times excess of interest charged. Contract not invalidated by usury. Grace
allowed except on sight paper. Legal holidays : same as New York, except
the omission of January 1st and Saturday half-holidays. Paper due on a
holiday is payable the preceding business day and must be then presented
and if not paid protested.
New Jersey. Legal rate 6 %. Usury, penalty, forfeiture of all interest
and payment of costs. Grace three days. Twenty-four hours additional
allowed for notice of dishonor. Legal holidays and provisions in regard to
payment of paper then due same as New York.
New Mexico. Legal rate 6 %. Maximum contract rate 12 %. Open
running accounts from six months after date of last item bear 6 %. Judg-
ments carry same rate as contracts on which they are founded. Usury,
penalty of, forfeiture of double the amount of interest received, upon action
brought within three years. A fine is also inflicted for usury. Grace al-
lowed on notes same as on inland bills of exchange according to custom of
merchants. Legal holidays : Sundays, January 1st, July 4th, December
2$th, and all days proclaimed by the Governor as thanksgiving or fast days.
Paper falling due on any holiday is payable the next succeeding business
day.
New York. Legal rate 6 %. Except bottomry and respondentia bonds
and contracts, and call loans (see State Banks, page 105), all contracts or
agreements bearing a higher rate of interest than 6 % are even in the hands
of an innocent third party void. Corporations cannot set up usury as a de-
fence. By the Penal Code, Sec. 378, usury is made a misdemeanor. Ex-
cess of interest over legal rate may be recovered by the borrower by action
brought within a year from date of payment. Town overseers or county
superintendent of the poor may bring action within three years. An equity
suit may be brought by a borrower or his assignee for the benefit of creditor,
but not by other assignee, agent, or devisee to discover if usury has been
paid, or to declare void a usurious instrument.
State banks and private bankers are placed on the same footing in regard
to interest as national banks, and forfeit double the excess of interest
charged above the legal rate.
No grace.
Legal holidays : January ist, February 22d, May 3Oth, July 4th, Decem-
ber 25th (when any. of these days fall on Sunday the Monday following is
made the legal holiday), the first Monday in September, any general Election
day, every Saturday after 12 M., and any day appointed by the President of
the United States or the Governor of the State as a day of thanksgiving or
fasting.
Paper falling due on holidays or Sundays must be presented on the im-
mediately following business day, except that paper falling due on Saturday
\
INTEREST GRACE LEGAL HOLIDAYS. 273
may be presented at or before 12 noon, when if not paid, to protest the
same and hold the obligors, presentation, demand, and notice of protest or
dishonor may be made the first following business day.
North Carolina. Legal rate 6 %. Maximum contract rate in writing
8 %. Judgments bear rate specified in contract on which recovered. Pen-
alty for usury, forfeiture of interest. Payee may recover excess beyond legal
rate of interest by suit brought within two years. Bonds, bills, and notes
governed by custom of merchants in England. Three days' grace. Legal
holidays : January 1st and igth, February 22d, May roth and 2Oth, July 4th,
December 25th, and a Thanksgiving day to be fixed by the Governor. If
any of said days falls on Sunday, the following Monday shall be deemed a
public holiday, and paper due on such Sunday is payable on Saturday pre-
ceding, and paper which would otherwise be payable on said Monday shall
be payable on Tuesday thereafter. When any of the above named holidays
falls on Saturday, paper due on Sunday following is payable on Monday
following. Whenever any of said holidays falls on Monday, paper other-
wise payable on that day is payable on succeeding Tuesday.
North Dakota. Legal rate 7 %. Maximum contract rate 12 %. Any
rate in excess of 12 % is deemed usurious and warrants the forfeiture of all
interest so taken, and the payee may recover double the amount paid. The
National Bank Act provision in regard to usury obtains. Three days' grace
allowed on bills of exchange or drafts and on all promissory notes. Sundays
and holidays excluded in computation of days of grace.
Ohio. Legal rate 6 %. Maximum contract rate 8 %. A higher rate than
8 % cannot be collected, and on a contract bearing such higher rate the prin-
cipal sum and 6 % only can be recovered. Three days' grace except on sight
paper. If third day of grace be Monday, demand must be made on the next
preceding business day. Legal holidays : same as New York, except Satur-
day half-holiday and the first Monday in September, which for the presenta-
tion and demand of negotiable paper is not a legal holiday.
Oklahoma Territory. Legal rate 7 %. Contract rate 12 %. Judgments
bear 7 %. Grace, three days, on time paper.
Oregon. Legal rate 8 %. Contract rate 10 %. Judgments bear rate of
contract upon which they are recovered. Usury, which is charging a higher
rate than 10 #, is punishable by forfeiture of principal sum and costs of ac-
tion. No grace. Paper payable on a holiday due the next business day.
Legal holidays : same as New York, except Saturday half-holiday.
Pennsylvania. Legal rate 6 %. Savings banks not confined to legal
rate. Commission merchants and agents may agree with parties outside of
the State for 7 %. Usury, penalty of, forfeiture of interest, and when paid
recovery by suit brought in six months. Grace allowed. Acceptances in
excess of $20 to be in writing. A written promise on a note to pay a com-
274 PRINCIPLES AND PRACTICE OF FINANCE.
mission as a collection fee in case of non-payment destroys negotiability.
Legal holidays : January ist, February 22d, Good Friday ; May 3oth, when
on Sunday, Saturday preceding is the legal holiday ; July ist, the first Sat-
urday of September, Election days, September 25th, Saturday half-holiday.
When holidays, except May 3Oth, fall on Sunday, the Monday following
becomes the legal holiday. Paper due on a legal holiday is payable the next
business day. The third Tuesday of February (Spring Election day) and
the first Tuesday after the first Monday of November (Fall Election day^
are legal half-holidays after 12 o'clock.
Rhode Island. Legal rate 6 %. Contract rate unlimited. Judgments
bear 6 %. Debts, in the absence of a contract to the contrary, bear 6 %.
Grace allowed. Paper falling due on Sunday or a legal holiday is payable
the next business day. Legal holidays : July 4th, Christmas day, February
22d, May 3Oth (when any of these days fall on Sunday the following Mon-
day becomes the legal holiday), the first Wednesday in April, the first Tues-
day after the first Monday in November on every even year, Arbor day,
and Thanksgiving and Fast days State or National.
South Carolina. Legal rate 7 %. The charging of a greater rate than
8 % involves the forfeiture of double the amount of interest charged. The
receipt of usurious interest renders the lender further liable to an action for
double the amount of interest received. This may be pleaded by way of
counterclaim. Grace allowed. Legal holidays : Sundays, January 1st,
February 22d, July 4th, December 25th, 26th, and 27th, first Monday in
September, Thanksgiving, and all general Election days. Paper falling due
on a holiday is payable the next business day.
South Dakota. Legal rate 7 %. Contract rate 12 %. Usury, penalty, .
forfeiture. Also a misdemeanor punishable with a fine of $500 or six
months' imprisonment or both. Interest begins to run on open account
from date of last item. Judgments bear 7 %, Grace allowed. Sundays
and holidays excluded in computing grace. Legal holidays : none peculiar
to State.
Tennessee. Legal rate 6 %. Usury, penalty, forfeiture of interest, also
a misdemeanor. Grace except on sight paper. Paper falling due on ist
January, 4th of July, 25th of December, or any National or State Fast or
Thanksgiving day, is payable the day previous, unless such day is Sunday,
when it becomes payable the preceding Saturday.
Texas. Legal rate 6$. Maximum contract rate 10$. Penalty of
usury, forfeiture of interest. When paid, double the amount of interest may
be recovered by suit brought within two years. Grace allowed. Legal
holidays : January ist, February 22d, March 2d, April ist, July 4th, Decem-
ber 25th, Thanksgiving, State and National general Election days. If any
of these days fall on Sunday, the Monday following is the legal holiday.
Presentation of paper may be made the Saturday before.
INTEREST GRACE LEGAL HOLIDAYS. 2/5
Utah Territory. Legal rate 8 %. Contract rate unlimited. Judgments
bear rate of interest of contracts on which they are recovered. No grace
allowed. Acceptances must be in writing. Legal holidays : Sundays,
January 1st, February 22d, first Saturday in April, May soth, July 4th and
24th, first Monday in September, December 2 5th, and Thanksgiving or Fast
days. If holidays fall on Sunday, Monday following is observed.
Vermont. Legal rate 6%. Usury, penalty, forfeiture of excess over
legal rate. Judgments bear 6$. No grace allowed on paper made and
payable in this State. Paper due on Sundays or legal holidays payable fol-
lowing business day.
Virginia. Legal rate 6 %. Corporations not limited to this rate. Usury,
penalty, forfeiture of all interest. When usurious interest is paid upon
contract it is credited as part payment of principal. Judgments bear 6%.
Corporations cannot plead usury. Grace allowed on all save sight paper.
Legal holidays : January 1st and igth, February 22d, July 4th, first Mon-
day in September, December 25th, Thanksgiving and Fast days. Paper due
on a Sunday or legal holiday is payable the preceding business day. Holi-
days falling on Sunday are observed the Monday following.
Washington. Legal rate 8 %. Contract rate unlimited. Grace, three
days, allowed on all paper unless paper contains an expressed stipulation to
the contrary. Where the last day of grace falls on a holiday the holiday is
not counted and the paper is payable the preceding business day. Legal
holidays : Sundays, July 4th, December 25th, January 1st, February 22d,
Decoration day, general Election and Thanksgiving days.
West Virginia. Legal rate 6 %. Usury may be pleaded and excess of
interest over legal rate forfeited. Corporations not limited to legal rate.
Judgments bear 6 %. Paper due on Sunday or a legal holiday is payable the
preceding business day. Notice of protest however need not be given until
the following business day. Legal holidays : January 1st, February 22d,
July 4th, day of national Thanksgiving, and Christmas. Grace allowed.
Wisconsin. Legal rate 6$. Maximum contract rate 10$. Contracts
reserving more than 10$ valid for principal only. The payer of more than
10 % interest may recover triple the amount paid. Paper maturing on a legal
holiday payable the preceding business day.
Wyoming. Legal rate 12 %. Contract rate unlimited. Unsettled ac-
counts bear interest after thirty days. Grace allowed. Legal holidays :
January ist, February 22d, May isth, July 4th, Thanksgiving day, and
December 25th.
In the case of paper due in a State other than the one
in which the holder resides, the best course to pursue is
2/6 PRINCIPLES AND PRACTICE OF FINANCE.
to deposit the same in his local bank for collection, the
bank forwarding the paper to the place of collection and
becoming responsible to the depositor for any omission of
duty on its or its agents' part whereby any obligor may be
released from payment.
In the case of obligations maturing in a State not the
domicile of the maker, the best course is to deposit with
the local bank funds sufficient to meet the same, directing
them to take up the paper.
This subject is more fully treated in various parts of
this work, especially in drafts, checks, bills of exchange,
and transmission of money.
GLOSSARY.
A
ABANDONEE
The person to whom a right or thing is relinquished, surrendered, or
abandoned.
ABANDONER
One who abandons.
ABANDONMENT
Surrender or relinquishment of a privilege, right, or possession.
(Marine law) The abandonment by the master or owner of his ship
and its freight to a creditor in satisfaction of a contract. (Marine
insurance) The surrender to the insurers of such remaining portion of
the insured property after the happening of the event insured against.
This is done to hold the insurer for the total amount of the insurance.
(Customs) The abandoning of dutiable goods to the government to
escape payment of duties.
ABATEMENT
Reduction. The measure of decrease. Refunding of duties. The
amount deducted from the first amount of a tax bill.
ABBAS
An Eastern weight for pearls, supposed to be 2^ grains Troy.
ACCEPTANCE
The obligation of the drawee to pay a draft or bill of exchange,
generally evidenced by his writing the word " Accepted," and his
signature on the paper the payment of which is assumed. Accept-
ances are "general" when unlimited by any qualifying words,
" special " when payable at a specified time and place, and " qualified ' r
when accepted for a less sum than is named on the face of the paper,
"supra protest " or "for honor," when accepted by a person not the
drawee to save the honor or credit of the drawer or an endorser after
refusal of the drawee to accept. Also the paper accepted, or the sum
named therein.
277
2/8 GLOSSARY.
ACCOMMODATION ENDORSER
An endorser who, without consideration or protection, endorses the
paper of another not payable to himself.
ACCOMMODATION PAPER
Negotiable paper drawn, accepted, or endorsed without consideration
by one to enable another to obtain credit or raise money on it.
ACCOUNT
A statement of the items and amounts due by one person to another
for goods, services, etc. ; a course of business dealings.
ACCOUNTABLE RECEIPT
A receipt of money or goods to be accounted for.
ACCOUNT CURRENT
(Open Account) A course of business dealings still continuing.
ACCOUNT RENDERED
A statement presented by a creditor to his debtor, showing the charges
of the former against the latter.
ACCOUNT SALES
A statement rendered by a broker, factor, or agent to his principal.
ACCOUNT STATED
An account or statement which has been acknowledged as correct by
the debtor, or to which he has not objected within reasonable time,
showing the result of a course of transactions.
ACKNOWLEDGMENT
A written admission made before an officer empowered to take
acknowledgments, such as a notary, commissioner, or judge, stating
that the person making the same executed the paper for the "pur-
poses therein stated," etc. ; generally attached to bonds, mortgages,
deeds, etc.
.ACT OF HONOR
An instrument executed by a person not the drawee, after protest of
draft or bill of exchange, to save the honor or credit of any party
thereto.
ACTUARY
An expert in the application of the doctrine of annuities, especially
with reference to insurance. Commonly one of the principal officers
of life insurance companies, whose duties are principally to deduce
from statistics, data, mortuary tables, etc., the value of contingent
.assets, the amount of accruing indebtedness, the proper premium
charges, and to furnish statements of the company's condition.
GLOSSARY. 2/9
ADJUDICATE
To decide, to award, to settle.
ADJUDICATION
Award, decision.
ADJUST
To settle ; to agree upon.
ADJUSTMENT
(In marine insurance) The ascertaining and agreeing upon the final
indemnity to which the insured is entitled, also the part of such
indemnity for which each insurer is liable.
ADMINISTRATOR
(Legal) One who by virtue of authority from a proper court has
charge of the personal property of an intestate.
AD VALOREM DUTY
A tax calculated and imposed upon the value, and not upon the
weight, numbers, or packages of dutiable articles.
ADVANCE NOTE (or Bill)
A draft or demand on the owner or agent of a ship or vessel. Wages
paid to sailors by the master or agent of a vessel on the signing
of articles.
ADVANCES
Payments made on consignments before sale of the merchandise con-
signed. Loans on bills of lading ; the delivery of a value before an
equivalent is received ; contributions to capital or stock ; increase in
price.
ADVENTURE
A commercial venture or enterprise in which one or more merchants
are concerned for their individual or joint account.
ADVENTURE (BILL OF)
A document issued by and bearing the signature of a merchant, ship-
owner, or his agent, indicating that merchandise aboard a particular
vessel is at the risk of another person, the maker of such bill being
liable solely for its safe delivery.
ADVICE
Information from one or more persons to others interested in a joint
transaction ; as notices, letters, drafts, or demands drawn, etc.
AGENCY
The office or place of business of an agent, factor, or representative
also the powers or duties of such agent, factor, or representative.
280 GLOSSARY.
AGENT
One acting in place or as the representative of another.
AGIO (also spelled AYGIO)
Premium of exchange ; premium or percentage of a better sort of
money when it is given in exchange for an inferior sort. The pre-
mium or discount on foreign bills of exchange is sometimes called
agio (Webster). The premium on depreciated currencies is called
disagio, also the depreciation in value owing to abrasion of coins.
AGIOTAGE
Rate or price of exchange ; speculation in exchange, bullion, stocks,
etc.
AGREEMENT (MEMORANDUM OF)
An instrument or document written or printed bearing the signatures
of the parties thereto, stating the subject of their mutual contract.
AGREEMENT OF INSURANCE
A contract preliminary to the issue of the policy between the insurer
and the insured, in regard to the terms and time of delivery of the
policy.
ALLOWANCE
A deduction for tare, tret, breakage, etc. A limited deviation from
exact conformity to the legal standard in the fineness and weight of
ALLOY
v. The introduction of a baser metal into a more valuable one to
decrease its value, n. The combination of a less valuable with a
more valuable metal or metals.
ANNUITY
A sum payable yearly, to continue for a number of years, for life, or
for ever ; an annual allowance (Webster).
APPORTIONMENT
A dividing into proportions or shares.
APPRAISAL
See Appraisement.
APPRAISE
To fix a price upon, to set a value. The price or value set by ap-
praisers named by individuals or appointed by law.
APPRAISEMENT
Act of appraising ; the price set on a value or service.
GLOSSARY. 28l
ARBITER (ARBITRATOR)
A person to whom parties have referred their differences for decision ;
a referee, an umpire.
ARBITRAGE
The agreed relative value of coin, currency, stocks, or bonds.
(Enc. Brit.) Arbitrage proper is a separate, distinct, and well defined
business, with three main branches. Two of these, viz. , arbitrage or
arbitration in bullion and coins, and arbitration in bills, also called
the arbitration of exchanges, fall within the business of bullion deal-
ing and banking respectively. The third, arbitrage in stocks and
shares, is arbitrage properly so called, and is understood whenever the
word is mentioned without qualification among business men.
ARBITRATION
The referring for decision of a controversy or dispute to an arbitrator
or arbitrators, or referee or umpire.
ARBITRATION BOND
A bond binding a party or the parties to a dispute or controversy to
accept the decision of the person or persons to whom such question is
referred.
ASKING PRICE
The price at which a value or right is offered for sale.
ASSIGN
To surrender or transfer to another (the assignee). In matters of
bankruptcy the instrument by which this transfer is effected is known
as an assignment.
ASSIZEMENT
The inspection by a person legally authorized and empowered, called
an assizer, of weights and measures and the qualities of commodities.
ASSOCIATION
A union incorporated or unincorporated of persons for a common
purpose.
ASSOCIATION, ARTICLES OF
The contract under which members of an association join together for
a common purpose.
ASSURANCE (Insurance)
A contract for the payment of a sum on the occurrence of a certain
event, as loss, death, etc.
ASSURED
The person or persons in whose favor a policy of insurance is written.
282 GLOSSAR Y.
ATTORNEY
A lawyer ; a counsellor at law.
ATTORNEY IN FACT
One appointed to act in the place or stead of another.
ATTORNEY, POWER OF
The instrument by which such appointment is made.
AVERAGE
" A contribution made by all the parties concerned in a sea adventure,
according to the interest of each, to make good a specific loss or
expense incurred for the benefit of all, sometimes called ' general
average.' A small duty paid by shippers of goods to the master of
the ship over and above the freight, in consideration of his special
care of the cargo, noted in bills of lading by the phrase ' With primage
and average accustomed.' " (Wor.)
AVERAGE ADJUSTER
(Marine Insurance) A skilled accountant employed to average or
ascertain the amount to be paid by each of the parties interested in
the loss sustained for the general account.
AVERAGE BOND
(Marine Insurance). A bond of consignees of cargo given to the
owner or master of a vessel guaranteeing when ascertained the amount
of their contributions to a general average.
AVERAGE, FREE OF
A list of articles excepted from liability to particular average on the
part of underwriters, which is generally attached to policies of marine
insurance.
AVERAGE OF ACCOUNTS
The average date on which accounts fall or become due.
AWARD
The decision of arbitrators, referees, or umpires.
B
BALANCE
The difference between the creditor and debtor sides of an account ;
the sum necessary to make the debtor and creditor sides equal.
BALANCE OF TRADE
Excess in value between exports and imports of a country.
BALLAST
Any comparatively valueless material carried in a vessel for the
purpose of making it draw sufficient water to enable it to be navigated
to advantage, and on which a trifling or no freight is paid.
GLOSSARY. 283
BANCO
In some countries where banks keep their accounts in a currency other
than that in common use ; the money in which such account is kept.
BANK
(P. 68) An institution for receiving and lending money.
BANK ACCOUNT
A sum deposited in a bank, which may be drawn out on the depositor's
written order.
BANK BILL
A bank note, a note, bill, or draft, or demand by one bank on another.
BANK BOOK
The book in which the depositor receives credit for amounts deposited
and in which his drafts or checks are charged.
BANK CREDIT
A credit extended by a bank.
BANKER
(See p. 178) The officer of a bank, or one who deals in money or
credits.
BANKER'S NOTE
The note of a private banker or unincorporated bank.
BANK HOLIDAY
In Great Britain a holiday on which banks are allowed to be closed.
Obligations due on this day are usually payable the next secular day.
BANK NOTE
A demand promissory note issued by a bank by authority of law (see
Money of the United States, p. 60).
BANK POST BILL
A bill issued for not less than ten pounds by the Bank of England
without charge.
BANKRUPT
An insolvent person ; one whose estate is being administered by a
receiver or assignee for the benefit of his creditors.
BANKRUPTCY, ASSIGNEE IN
The assignee of the property of a bankrupt.
BANKRUPTCY, INVOLUNTARY
When declared on the petition of creditors, showing the bankrupt
should not be continued in possession of his estate, is termed invol-
untary.
284 GLOSSARY.
BANKRUPTCY, REGISTER IN
An officer appointed by and under the. control of the Court to adjudi-
cate upon the affairs of bankrupts.
BANKRUPTCY, VOLUNTARY
When declared on the petition of the bankrupt, asking leave to trans-
fer or assign his estate for the benefit of creditors, is called voluntary.
BANK STOCK
Stock issued by a bank.
BARGAIN
A contract or agreement between two or more parties.
BARRATRY
(Wor.) Act or offence of the master of a ship or of the marines, by
which the owners or insurers are defrauded.
BARTER
(See Barter, p. 3.)
BARTERER
One who barters or traffics in commodities.
BAUBEE
(Wor.) A half-penny.
BAZAAR
A market-place.
BEAR
(See Brokers.) One who contracts to sell stocks, provisions, or com-
modities, or things, not owned by him, to be delivered at a future
time, for a certain price, and is consequently interested in depressing
their value ; one who is endeavoring to decrease the price of a stock
or commodity.
BETTERMENTS
Improvements on real property, other than ordinary repairs, which
add to its value.
BID
An offer.
BILL
A statement of the items and amounts of articles or values furnished,
or of services rendered by one person to another.
BILL OF ADVENTURE
(See Adventure, Bill of.)
GLOSSARY. 285
BILL OF CREDIT
A notification by one person to another to extend to the person
named in the bill the credit therein stated.
BILL OF COSTS
An itemized statement of the taxable costs of a litigant.
BILL OF ENTRY
A statement, written or printed, signed by the importer, of goods
entered at a custom house.
BILL OF EXCHANGE
(See page 38.)
BILL OF HEALTH
A certificate by the proper authorities as to the state of health in a
vessel on leaving or arriving in port.
BILL OF LADING
A receipt given to shippers by vessels or transportation companies,
setting forth the goods placed in their care for transportation.
BILL OF PARCELS
An account of goods sold given by the seller to the buyer, containing
the quantities and prices of the articles, with a statement of the date
and terms of credit. (Wor.)
BILL OF SALE
An instrument conveying the right, title, or interest in personal
property.
BILL OF SIGHT
A form of entry at the custom house by which goods, respecting
which the importer is not possessed of full information, may be pro-
visionally landed for examination. (Wor.)
BILL OF STORES
A custom-house license permitting merchantmen to carry free of cus-
toms duties stores and provisions necessary for a voyage.
BILL OF SUFFERANCE
A coasting license permitting vessels to trade from port to port with-
out paying customs duties, the dutiable goods being landed at suffer-
ance wharves.
BILLS PAYABLE
The outstanding unpaid notes or acceptances made and issued by an
individual or firm.
BILLS RECEIVABLE
The unpaid promissory notes or acceptances of others held by an
individual or firm.
286 GLOSSARY.
BI-METALL1C
A double metallic monetary system, as gold and silver.
BLANK
A printed form containing unfilled spaces or lines to be filled in to
suit the particular occasion.
BOND
A written obligation under seal to do or refrain from doing a certain
act or thing. When a penalty is attached for failure to perform the
contract, the bond is known as a " penal bond."
BOND
(See Stocks, Bonds, etc., page 209.)
BONDED DEBT
That part of the debt of a corporation represented by its outstanding
bonds.
BONDED WAREHOUSE
A building licensed by the customs authorities to receive and keep
goods in store prior to the payment of customs or internal-revenue
duties thereon.
BOND FOR LAND
(or bond for a deed) A bond given by the seller of land to the one
agreeing to buy it, binding him to convey on receiving the agreed
price.
BOND, IN
Goods in bond are in charge of the customs authorities, and are stored
in a bonded warehouse or store.
BOND OF INDEMNITY
A bond conditioned to indemnify the obligee against some loss or
liability.
BOOK OF ORIGINAL ENTRY
A book in which the first written entry of a transaction is made, such
as the blotter or sales books, in which entries are or should be made
at the time of the sale or transaction.
BOOKKEEPER
An accountant ; one who keeps books.
BOOKS
In commerce technically means only the Ledger, Journal, Day Book,
Cash Book, Bills Receivable, and Bills Payable, or books the entries
in which are taken from other books or memoranda.
GLOSSARY. 287
BOOKS OF ACCOUNT
Books containing a record of the pecuniary dealings of a person or
persons. In cases of corporations used in contradistinction to the
records, or books in which a record of the meetings, resolutions, etc.,
of their stockholders and Board of Directors is kept.
BOTTOMRY
Borrowing money on a pledge of the bottom of the ship as security.
BOTTOMRY BOND
A mortgage of the ship as collateral for a loan.
BOUNTY
A premium offered by the government to men engaged in certain
industries, such as the bounty at one time paid to sugar growers.
When paid to steamship companies it is generally called a subsidy.
BROKER
(See page 182.)
BULL
One whose aim is to raise the price of stocks or merchandise.
BULLING
Raising or trying to increase the price of stocks, etc.
BULLION
(See page 13.)
BUYER THREE
A technical expression used in Wall Street, meaning the purchase
must be consummated in three days.
C
CALL
A summons or request from a superior officer of a government or
corporation requiring representatives or others to assemble. An
assessment on the stockholders of a corporation or joint-stock com-
pany, or members of a mutual insurance company, for the payment
of assessments on insurance policies, or in the case of other corpora-
tions for the payment of instalments of their unpaid subscriptions, or
for their promised, or legally liable, contributions for losses. A
request to holders of bonds to present the same for payment and
cancellation.
CALL LOAN
A loan subject to payment on the call and demand of the lender.
288 GLOSSARY.
CAPITAL
(Page 27.) The wealth employed in carrying on a particular trade,
manufacture, business, or undertaking ; stock in trade ; the actual
estate, whether in money or property, which is owned or employed
by an individual, firm, or corporation in business. In the case of a
corporation it is the aggregate of the sum subscribed and paid in, or
secured to be paid in, with the addition of undivided gains. Gen-
erally speaking, sums received from the sale of stock are capital,
whereas those received from sales of bonds are not capital, but
borrowed money.
CAPITALIST
One who has capital ; a man of large property.
CAPITALIZE
To supply with capital.
CASH
Ready money ; money at hand or at command.
CASH CREDIT
A credit to an agreed amount extended by a banker, generally on
deposit of security or guarantee of repayment.
CASHIER
One who has charge of cash.
CHANGE
Exchange, barter. Also, an abbreviation for Exchange, a meeting-
place. Coins of lower denominations. The sum of money handed
the seller in excess of the price of the article sold.
CHARGE
A demand, a claim. The price of an article, right, or service.
CHARGES, OUTWARD
The pilotage and other charges incurred by a vessel leaving port.
CHARTER
The instrument granted by a superior power to an inferior, defining
the latter's rights and powers, as the charters granted by States to
cities, towns, and corporations.
CHARTER PARTY
A written agreement by which a ship owner lets a vessel to another.
CHATTEL
Any movable property or goods, as money, stocks, bonds, furniture,
plate, horses, etc. Everything but real estate or a freehold.
GLOSSARY. 289
CHATTEL MORTGAGE
A mortgage on chattels.
CHECK
(See page 253.)
CHECK-BOOK
A book containing blank checks and stubs.
CLAIM
A demand. The amount of anything demanded.
CLAIMANT
One making claim or demand.
CLEAR
To free from encumbrance or detention. In the case of a vessel the
furnishing and procuring the necessary customs papers, and such
compliance with port regulations as will permit the vessel to " clear"
or sail. In the case of goods, the payment of duties or taxes neces-
sary to relieve them from governmental restraint.
CLEARING
The daily balance of banks' demands against each other at the
Clearing House. The sailing of a vessel.
C. O. D.
Collect on delivery.
COLLECTOR
A Federal officer empowered to collect customs duties. A person
employed to collect.
COLLUSION
Secret agreement for a fraudulent or harmful purpose.
COMMERCE
Barter, trade, exchange, traffic. Foreign commerce is that carried
on between nations. Inland trade (commonly called '* Domestic " or
" Internal trade") is an exchange of commodities within the territory
of one country.
COMMERCIAL PAPER
Bills of exchange, drafts, notes, etc. , drawn against the purchaser of
merchandise.
COMMISSION
(Wor.) A document or writing investing one with authority. The
order by which one person buys or sells goods, securities, etc., for
another. The percentage or compensation which an agent, factor,
salesman, commission merchant, or broker charges or receives for
services. Two or more persons appointed for the doing or investi-
gating of a particular thing.
290 GLOSSARY.
COMMISSION AGENT
An agent who transacts business for others on commission.
COMMISSIONER
One empowered to act in some matter or business for one or more
persons or a government.
COMMISSIONER OF DEEDS
A person authorized by a State or country to take acknowledgments
of deeds, etc.
COMMISSION MERCHANT
One who buys or sells goods for another on commission, or who acts
as agent in buying and selling, receiving for his services a commission.
COMMON CARRIER
Railroads, express companies, steamship lines, and others engaged in
the business of carrying persons or freight.
COMPANY
(Page 200.)
COMPARISONS
(Stock Exchange.) The act of comparing the sellings and purchases
of stock by the different sellers and buyers.
COMPLAINANT
A plaintiff, a claimant, the person who begins a suit.
COMPOSITION
An agreement between a debtor and his creditors, by which the latter
accept in full payment of their claims a portion of the amounts due.
The sum or rate paid or agreed to be paid in compounding with
creditors.
COMPOSITION DEED
A contract between creditors and their debtor effecting a composition,
usually in a manner to bind the creditors not to molest the debtor.
COMPOUND
(See Composition and Compromise.)
COMPROMISE
. Mutual concession. The agreement arrived at.
CONSIGNEE
The person to whom a commodity, right, or thing is consigned.
CONSIGNMENT
The goods forwarded by a consignor.
GLOSSARY. 291
CONSIGNOR
One who consigns or entrusts merchandise to another.
CONSOLS
A term used to denote a considerable portion of the public debt of
Great Britain, more correctly known as the three per cent Consoli-
dated Annuities.
CONSUL
An official agent of a government, accredited to a foreign power,
whose office is to protect the commercial interests of the country he
represents.
CONTINGENT
The interest of a particular party in a joint speculation or business
venture.
COUPON
An order attached to bonds for the payment of interest.
CREDITOR
One who extends credit to another ; one to whom another is
indebted.
CUSTOM HOUSE
A Federal building or office where vessels and merchandise are
entered, and duties upon dutiable imported goods are collected.
CUSTOM-HOUSE BROKER
A person who acts for others in the entry or clearance of ships, the
entry and payment of taxes on merchandise, and the transaction of
custom-house business generally.
CUSTOMS
Import duties, as distinguished from internal- revenue duties ; taxes
collected at a custom house.
DEBENTURE
(Wor.) A custom-house certificate, entitling the exporter of imported
goods to a drawback of the duties paid on their importation. An
instrument in some government departments by which the govern-
ment is charged to pay to a creditor or to his assigns the sum found
due on auditing his accounts.
DEBT
That which one person owes to another. (Wor.) A sum of money
due by certain or express agreement.
292 GLOSSARY.
DEBTEE
A creditor.
DEBTOR
(Wor.) One who owes anything to another.
DECISION
(Wor.) The judgment or determination given by a judicial tribunal ;
the report of such determination.
DECLARATION
A publication, statement, or formal announcement (thus declaration
of dividends). The paper, message, or letter by which the declara-
tion is made.
DECREASE
An allowance by the revenue officers to importers of liquors for loss
by leakage while in bond, on which loss no duty is charged.
DEDUCTION
Taking away ; abatement ; the thing or amount deducted.
DEED
A writing authenticated by the seal of the person whose mind it
purports to declare. More specifically such a writing made for the
purpose of conveying real estate.
DEFAULT
A failure to perform within the agreed time an agreement, contract,
or condition, as default in interest.
DEFAULTER
One who fails to properly account for or make return of values
entrusted to his care.
DEFENDANT
In law the person against whom redress is sought ; the one accused
of wrong, the person attacked, the one defending.
DEFICIENCY
Lack of the necessary quantity or amount ; the sum required to make
up a given amount.
DEFORCIATION
A seizure of goods for the satisfaction of a lawful debt.
DEFRAUDER
A swindler, a cheat ; one guilty of fraud.
DEFRAY
To compensate for, settle, pay.
GLOSSARY, 293
DEKADRACHM
(Ten drachm.) An ancient silver coin of the value of ten drachms.
DEL CREDERE
The guarantee of a factor or agent to his principal of the credit or
solvency of the persons to whom the goods of such principal are sold.
Also used to indicate the reinsurance by one insurance company of
its policies in another.
DEL CREDERE COMMISSION
A commission charged for guaranteeing the credit or solvency of
persons to whom goods are sold.
DELEGATE
A person appointed or sent by another in his interest to perform a
certain act.
DEMURRAGE
A per diem allowance granted to the owner or his agents for the
detention in port of a vessel beyond the time named in the charter
party.
DEPARTMENT
(Web.) Subdivision of business or official duty. One of the princi-
pal divisions of executive government.
DEPONENT
(Web. ) One who deposes or testifies under oath ; one who gives
evidence ; usually one who testifies in writing.
DEPOSIT
(Web.) To lodge, place, or put in one's hands for safe keeping ; to
commit to the custody of another. Also the thing deposited.
Money lodged with a party as earnest or security for the performance
of a duty assumed by the person depositing.
DEPOSITARY
The receiver of a thing in trust.
DEPOSITION
Written evidence taken before a duly authorized person.
DEPUTY
A substitute, a lieutenant ; a representative ; an assistant.
DERELICT
A thing voluntarily abandoned or cast adrift ; a ship abandoned at
sea. A tract of land from which the sea has receded, and fit for cul-
tivation or use.
294
GLOSSAX Y.
DERELICTION
The act of abandoning with intention not to reclaim. A receding of
the sea whereby land is gained.
DESPATCH
(Marine Insurance) A certificate setting forth the value of a ship
and her cargo liable to contribution in case of a loss incurred for the
common benefit.
DEVIATION
(Marine Insurance) A wilful departure from a ship's allotted course,
forfeiting insurance.
DIFFERENTIAL DUTY.
(Also Discriminating Duty) A higher duty levied and collected on
certain merchandise when imported indirectly from the country
where it is produced than when imported directly. A higher tonnage
duty on vessels not owned by citizens of the importing country than
on vessels owned wholly or in part by such citizens.
DIRECTOR
One who directs, guides, superintends, governs, or manages. One
of a number of persons elected or appointed, having authority to
manage and direct the affairs of a company or corporation.
DISAFFIRM
(Wor.) To annul or cancel, as a voidable contract.
DISCHARGE
The unloading or unburdening of a ship or cargo. (Wor.) The act
of setting free ; acquittance ; the instrument by which a person is
discharged from debt or obligation, or an encumbrance is cancelled.
DISHONOR
Refusal to pay ; to repudiate.
DISPOSSESS
To put out of possession ; to deprive ; to take away.
DISTRAIN
(Wor.) To seize and keep as a pledge in order to compel the per-
formance of some duty, such as the payment of rent, the perform-
ance of services, an appearance in court, etc.
DISTRICT
(Wor.) A civil division of a State or country for judicial or other
purposes.
DIVIDEND
The share or sum of the estate of a bankrupt paid to creditors. In
the case of stock, a sum to be distributed among the stockholders.
GLOSSARY. - 295
DIVIDENDS ON (OR OFF)
(Seepage 215.)
DIVIDEND, STOCK
A dividend payable in reserved or additional stock.
DIVIDEND WARRANT
A paper calling for the payment of a dividend.
TO MAKE A DIVIDEND To set apart a sum of money, or
a number of shares for such dividend.
TO PASS A DIVIDEND To fail to make an expected
dividend.
DOCKAGE
A charge for the use of a dock ; dock rent.
DOCUMENT
A writing, or paper.
DOMICILIATED
A note, draft, or other obligation, when payable in a different place
from that in which it is drawn, is domiciliated in the place where it is
payable.
DOUBLE ENTRY
A mode of bookkeeping in which two entries, one credit and one
debit, are made of every transaction.
DOWER
That portion of a man's lands and tenements to which his widow is
entitled after his death, to have and to hold for her natural life. '
DRAUGHT
Allowance on goods sold by weight.
DRAWBACK
(Wor.) Any sum of money paid back ; an allowance made by the
government to persons on the re-exportation of certain imported
dutiable goods ; also a repayment or remission of a duty laid on any
articles produced in a country, and suitable for the foreign market,
when such article is entered for exportation.
DRAWEE
The person on whom an obligation to pay is drawn.
DRAWER
One who draws a bill of exchange, draft, or other paper ; the maker.
DUNNAGE
Material used in the stowing of cargo in a vessel to preserve the
cargo from chafing or injury.
296 GLOSSARY.
DUTY
A tariff or tax on certain domestic and imported articles.
E. E.
Errors excepted.
E. & O. E.
Errors and omissions excepted.
EMBARGO
A governmental detention or restraint of vessels or commerce by
preventing vessels or shipping from entering or leaving its ports.
ENDORSEMENT
The signing of one's signature on the back of any document. (See
Notes.)
ENDORSER
One who endorses.
ENDORSER FOR VALUE
One who endorses paper drawn to his own order to obtain the value
thereof, or who endorses paper payable to another, on being indemni-
fied against loss, or who receives a consideration for his endorsement.
ENTREPOT
A magazine ; a warehouse for depositing goods (Wor.).
ENTRY
A record. Reporting a vessel or cargo at the custom-house. Taking
possession of lands or tenements.
EXCISE
A tax upon articles of domestic production.
EXECUTION
The seizure by legal authority of goods, chattels, or rights for the
satisfaction of a judgment.
EXECUTOR
A person appointed by a testator in his will to see that its provisions
are carried out.
EXPRESS
A regular and speedy conveyance for messages, packages, etc.
EXPRESSAGE
The charge made by express companies for carrying.
GLOSSARY. 297
P
FEE
A charge ; a bill.
FIRM
A partnership ; the persons composing a partnership.
F. O. B.
Free on board. To deliver to a particular transportation company
free of cartage charges.
FREE PORT
A port where goods may be landed free from custom-house restric-
tions (Wor.).
FREIGHT
Transportation charges. Articles in transit.
G
GARBLE
The dross, dust, and refuse of drugs and spices.
GARBLER
(In London) An officer empowered to inspect drugs and spices.
GARBLING
Selecting the worst of any commodity.
GRACE
The time beyond the .due date in which the debtor may make pay-
ment on a note, bill of exchange, or other obligation.
GROUNDAGE
The charge made for the ground or berth occupied by a ship while in
port.
H
HUSBANDAGE
The agent or managing owner's allowance or commission for attend-
ing to a ship's business.
I
INSOLVENT
One who cannot pay his obligations in full.
INSURANCE
The act of insuring or assuring against loss or damage by a contin-
298 GLOSSARY.
gent event ; a contract whereby for a stipulated consideration, called
a premium, one party undertakes to indemnify or guarantee another
against loss by certain specific risks (Web.).
The person who undertakes to pay in case of loss, the " insurer" ;
the danger against which he undertakes, the " risk " ; the person pro-
tected, the "insured" ; the sum which he pays for the protection,
the "premium " ; and the contract itself when reduced to form, the
"policy."
Insurance is divided into Accident and Casualty Insurance, En-
dowment Insurance, Fire Insurance, Life Insurance, Marine
Insurance, etc.
INSURANCE BROKER
A broker who effects insurance.
INSURANCE COMPANY
A corporation which sells insurance.
INTEREST SHORT
(Marine Insurance) The amount over-insured.
INVOICE
An account, giving particulars, marks of packages, prices, etc., of
goods, furnished by a consignor to his consignee, by a seller to a
purchaser, or by a shipper to a transportation company.
J
JETTISON
The use, destruction, abandoning, or casting overboard of any part
of the ship's equipment, or for the sake of preserving the whole,
or the running aground of the ship to prevent sinking. The owners
of the cargo or property so used or destroyed, abandoned, or cast
overboard, have a right to recover its value pro rata from the ship-
pers whose property was saved.
JUDGMENT NOTE
A promissory note to which a confession of judgment is added, waiv-
ing necessity of lawsuit to procure judgment.
L
LETTER OF LICENSE
Creditor's permission to a debtor to manage his affairs without inter-
ference for a specified time.
LIGHTERAGE
The hire of a lighter or barge.
GLOSSAK Y. 299
LINE OF DEPOSIT
The average amount, during a given period, on deposit to a dealer's
credit in the bank with which he deals.
LINE OF DISCOUNT
The amount of a dealer's discounts or loans from a bank. Also the
amount of credit which a bank extends a depositor.
LIQUIDATION
The act of settling or winding up.
LIVE PAPER
Unmatured promissory notes, in contradistinction to matured, dead,
or protested paper.
LLOYD'S REGISTER
A book issued by the Lloyds, setting forth the name, tonnage, build,
rating, and other matters pertaining to ships and shipping.
M
MANIFEST
A list or invoice, containing a description by marks, numbers, etc.,
of a ship's cargo. Also, in the case of transportation and express
companies, a list of all goods to be delivered at a particular station.
MARGIN
(See Stock Brokers, page 186.)
MULCTS
Fines levied upon ships and their cargoes to maintain consuls, garri-
sons, etc.
NOTARY PUBLIC
A State officer empowered by commission to take acknowledgments,
administer oaths, take depositions, and protest notes and other nego-
tiable paper, within a certain county or counties as prescribed by law.
O
OVERDRAFT
Balance due on an overdrawn account. The amount of a check,
note, or draft in excess of the drawer's credit with the person on
whom drawn.
PAR
Face value.
3<DO . GLOSSAX Y.
PAR OF EXCHANGE
The relative bullion value of the money of one country to that of
another. (See Exchange, page 44.)
PERMIT
A customs license to remove goods, after payment, of duties, from
public stores.
PIERAGE
Taxation for the maintenance of piers.
POLICIES, FLOATING
(Fire Insurance) Policies on goods in undesignated buildings, or in
two or more named buildings, where the amount of goods in each
building is not specified.
POLICIES, OPEN
(Marine Insurance) Policies in which the value of goods insured is
not specified.
POLICIES, VALUED
(Marine Insurance) A policy stating the value of the insured mer-
chandise.
POLICY
A contract between an insurance company and the insured.
PREMIUM
(Insurance) The charge made by the insurer to the insured for the
insurer's assumption of loss.
PREMIUM OF EXCHANGE
(See Exchange, page 44.)
PREMIUM ON SHARES
(See Stocks, page 209.) The price beyond the face value.
PRICE, AVERAGE
The average money value of securities or commodities for a length of
time.
PRICE CURRENT
A current list of the market price of commodities or securities.
PRICE, MARKET
The money measure of the value of securities or commodities.
PRIMAGE
A percentage allowed by shippers to the owners or charterers of a
vessel for the loading of goods.
GLOSSARY. 301
PRIME EXCHANGE
Is exchange issued by houses of known solidity, whose bills are every-
where accepted.
PRINCIPAL
Capital. The sum on which interest is computed and paid.
PROCURATION.
Power or authority to act for another.
PRO FORMA
For form's sake. A fictitious transaction used to illustrate a business
dealing.
PROMPT
The period of time within which payment must be made for goods
purchased.
PROTEST OF NOTES
The notarial certificate required by law of the due presentation to
and refusal of, a maker to pay a note.
Q
QUARANTINE
The time which a ship must remain at a given point, called " Quar-
antine," before entry into port. (Leg.) The right of a widow to re-
main in the homestead of her husband for the period of forty days
after his death, without being liable for rent.
QUOTATIONS
The prices quoted or named.
R
REBATE
An allowance. A repayment by a lender to a borrower of interest
from the time on which an obligation is paid to that on which it
is due
RECEIPTS
Acknowledgments of delivery, payment, or satisfaction.
RECONCILE
To agree upon and correct differences in the details of an account
current. To cause the balance in each to correspond.
REGISTER
An official document relating to a vessel, stating its nationality, place
of building, measurement, etc.
302 GLOSSAR Y.
RETIRE
To take up or pay before maturity a loan or note discounted.
RESPONDENTIA LOAN
Money lent upon the security of a cargo.
RETURNS
Remittances. Sales for a given time.
REVERSIONARY INTEREST
A right to possession of property at the termination of a precedent
estate.
S
SALVAGE
A compensation for rescuing or preserving a vessel, its cargo, or any
part thereof from entire or partial loss. The amount of such com-
pensation.
SCRIP
Dividends payable in stock issued upon the capital of a company.
STOCK, PREFERRED
(See Stocks, page 212.)
STOCK, SECOND PREFERRED
(See Stocks, page 212.)
STOCK SHORT
(See Brokers, page 190.)
SUPERCARGO
An owner's agent aboard ship to superintend the sale of cargo, to
procure freight, etc.
SURPLUS
A fund over and above the capital required to conduct a given enter-
prise. In banks, a fund in excess of the capital and legal reserve,
and out of which dividends are paid.
SUSPENSE ACCOUNT
An account of unpaid notes, disputed claims, and moneys in litigation.
An account of claims of dubious value.
T
TELLER
(See page 118.)
TIME BARGAIN
A contract to be performed at a future specified time, usually applied
to the purchase or sale of goods or securities.
GLOSS A R Y. 303
TONNAGE
The carrying capacity of a vessel expressed in tons ; also the quantity
of freight a vessel is permitted to carry.
TRANSIT
A custom-house warrant or pass.
TRUE BILL
An indictment sanctioned by a Grand Jury.
U
UNDERWRITER
One who underwrites or guarantees the payment of a policy of insur-
ance ; an insurer.
USANCE
The time fixed by custom in which a bill of exchange may be paid
after the due date ; grace ; grace as applied to foreign bills of
exchange.
USURY
An interest charge above the rate of interest prescribed by law, and
applicable only to interest on debts and obligations on which the law
prescribes the maximum interest charge.
V
VALUE
(See page 4.)
VALUE, FACE
The value expressed on the face of an instrument.
VALUE, MARKET
The exchangeable value of a thing in open market, as distinguished
from face or par value, or price.
VALUE, PAR ,
The full face value.
VOUCHER
A paper or document acknowledging that some payment has been
made or other business transaction effected. A receipted bill.
W
WAREHOUSE RECEIPTS
Receipts for merchandise issued by the warehouses in which such
merchandise is stored.
WARRANT
A draft drawn by its officers upon the treasury of a corporation,
national, State, or municipal treasury.
C Web Webster.
Dictionaries : ]
( Wor Worcester.
INDEX.
Agricultural products, 8l
American securities, 47
Arbitrage houses, 43
Assay Office, 67
Auxiliary industries, 9
B
Balance of trade, how settled, 46
Bank account, 129
Banks, 68, 70
Assistant cashier, 117 ; Bookkeeper,
126 ; Cashier, 117 ; Check deposit,
course of, 130 ; Check deposits not
to be drawn against same day, 127 ;
Currency deposit, 130 ; Deposit,
course of, 129 ; Deposit slip, course
of, 130 ; Directors, board of, quali-
fications, etc., 113; Discount, 123;
Discount clerk, 123 ; Discount de-
partment, 122 ; Ledger-keeper, 126 ;
Management of, 113 ; Methods of
business, no; Notes, presentation
of, 128 ; Note teller, 126; Offering
book, 125; Paper for collection, 125;
Pass books, 127, 129 ; Runners,
duties, 127 ; Vice-president, 116
Barter, principles of, 3, 5
Bill of lading, 243
Bills of exchange, 250
Bonds, 217
Car trust , 225 ; Collateral trust
, 222 ; Consolidated mortgage ,
1st, 2d, and 3d, 221; Convertible ,
222; Corporate ,217; Debenture
, 223 ; First mortgage , 220 ;
General mortgage , 224 ; Im-
provement and extension , 225 ;
Income , ist, 2d, and 3d, prefer-
ence, 221 ; Redemption before ma-
turity, 225 ; Remarks, 225 ; Second
mortgage , 220 ; Sinking fund ,
224
Brokers, 182
Bear pool, 191 ; Bucket shops, 183 ;
Bull pool, IQO ; Business routine,
184 ; Charges, 184, 185 ; Commis-
sion houses, 183 ; Consolidated ex-
change, 182 ; Consolidation of
properties, 188 ; Curbstone , 182 ;
Information, 187 ; Interest charges,
186 ; Losses, 187 ; Margin, 185 ;
Margin, speculating on, 186 ; Mem-
bership in exchange, 182 ; Pools,
190 ; Price of stocks, 187 ; Quick
sale, 187 ; Rumors, 189 ; Shorts,
190 ; Specialists, 185 ; Speculation
of partners forbidden, 183 ; Tips,
189; Traffic agreements, 188 ; Two-
dollar, 185
Building and Mutual Loan Associa-
tions, 167
Amount of money invested in, 167 ;
Accumulation, method of, 168 ;
offering of, 179 ; bidding for, 176;
Consolidation and merger, 173 ;
Directors' powers, 171 ; Dividends,
172 ; Dues, 168 ; Funds to be put
up at auction and bid for 169 j
Gross premium, serial plan, 169 ;
Incorporation, certificate, what it
must state, 1 70; certificate of, to
be approved by superintendent,
etc., and filed with county clerk
and superintendent, 171 ; Incor-
porators, number of, 170 ; Interest,
176 ; Loans, limit of, 176 ; limit of
amount, 171 ; premiums on, 169 ;
theory of, 169 ; Matured shares,
order of payment, 176 ; Method,
167, 168 ; Minors and wards, how
held, 172 ; Monthly meetings, 176 ;
306
INDEX.
Objects, 167 ; Officers and creditors,
liability of, 172 ; Old corporations
may reorganize under this law, 172 ;
Organized under State law, 167 ;
Penalties and forfeitures, 168, 171 ;
Shareholders, dissenting, rights of,
173 ; liability, 172 ; not exempt by
reason of losses, etc., 172 ; Shares
up to $600 exempt from execution,
172 ; Subscribers, 168 ; rights of,
169 ; Usury, 172
Cable and telegraph transfers, 244
California, discovery of gold in, II,
16
Capital, 28
Commercial definition, 29 ; dis-
tinguished from wealth and prop-
erty, 28 ; Insufficient capital, danger
of, 31 ; Invested capital, available,
31 ; Land not capital, 29 ; Necessity
of use, 28 ; Ratio of capital to busi-
ness, 30 ; Relation of capital to
property, 28, 29 ; Subject to decay,
28 ; Unemployed capital, 31
Cash, 231
Certificates of deposit, 257
Certificates of indebtedness (floating
debts), 226
Checks, 253
Cashiers' checks, 257 ; Course
through bank, 256 ; Devices for
protection, 255
Cheque banks, 242
Clearings, annual, 32
Clearing House (New York), 132
Balances, how paid, 135 ; Clear-
ances, average annual, 135 ; Clear-
ing charge, 133 ; Clearing house
certificates, 136 ; Clearings, annual,
132 ; Creditor banks, 135 ; Debtor
banks, 135 ; Delivery and settling
clerks, 134; Dues, annual, 133;
England, when clearing houses first
established in, 134 ; Government of
New York Clearing House, 137 ;
Importance of New York Clearing
House, 135 ; London Clearing
House, clearances, 136 ; Member-
ship, conditions of, 133; Object,
133: Officers and committees, 133;
Operation, 134 ; Original member-
ship, 132; Proof clerk, 134; Sub-
Treasury, 133
Clothing products, 50
Coinage a sovereign' prerogative, 15
Coinage, free, 24
Coins, 15
Government control of, 23
Commercial agencies, 234
Commercial bills, 243
Commercial houses, 230
Competition and combination, 55, 56
Comptroller of currency, 7 1
Co-operative Loan Associations, 173
Accumulations, 175 ; Attorney, 174 ;
By-laws, 174; Capital stock, 174;
Directors, board of, 173 ; Dues,
174 ; Entrance fee, 175 ; Fines,
174: Objects, 173; Officers, 173;
Organization, certificate of, 173 ;
Organizers, 173 ; Payments, when
to cease, 175 ; Shareholders, 175 ;
Shares, 174 ; Shares, unpledged,
may be retired by directors, 175 ;
Treasurer and secretary, 175
Copper, 6 1
Corporations, 200
Directors, residence of, 204 ; In-
corporation, certificate of, 204 ;
Objects, 200 ; Permits, 203 ; Per-
petuity, 200 ; Privileges, 200, 204 ;
Property owners, consent, 203 ;
Resident attorney in fact, 204 ;
Stock and transfer books, 204 ;
Taxation, 202 ; Treasury stock,
204
Corporations Duties of officers
Assistant secretary, 205 ; Bank to
be named, 206 ; Commissioners or
committee, 205 ; Directors, board
of, 207 ; General manager, 207
President, 205 ; Secretary, 205
Secretary and treasurer, 205
Treasurer, 205 ; Vice-president,
205
Coupons, 217
Credit
Amount, 32 ; on what extended,
34. 35 > system of country, 33 ;
Importance of, 7, 8, 32 ; Money'an
auxiliary to, 33 ; Paper money, 33 ;
Principles of credit, 31 ; Credit
Revenue of, to bankers, 35
Creditor banks, 135
Currency, governmental control of,
24-26
Currency, 10, H
of United States, 62 ; certifi-
cates, 63
INDEX.
307
D
Debtor banks, 135
Demand, 54
Disproportionate increase of commodi-
ties, 51
Distribution, 53
Diversity of industry, how created, 51
Drafts, distinction between draft and
check, 248
Endorsements, 247
Exchange
Arbitrage houses, 43 ; Buying ex-
change, 40 ; complex, 41; domestic,
41 ; Final balance, 47 ; Final debtor
countries, 47 ; Foreign balance, 39 ;
how calculated, 42 ; Gold bullion
basis, 42 ; Par of, 44 ; Premium and
discount, 44 ; Rate of, 40 ; Relative
value of currencies, 42 ; constantly
changing, 42 ; selling, 44 ; specula-
tion, 40 ; Shipment of bullion, 47 ;
Simple exchange, 39 ; World's ex-
ports and imports equal, 46
Exchange, bills of, 250
Exchanges, 104
Exports and imports equal, 46
Express companies, 238
Final debtor countries, 47
Food products, 50
G
Gold the universal standard of value,
13, 58
Gold certificates, 63 ; coinage free,
24 ; money of the United States,
60 ; standard, 13, 58, 59
Greenbacks, 60
Gresham's law, 16
I
Interest, 35
Current interest, 35 ; Discount, 35 ;
Interest laws of States, 268 ; Interest
warrants, 229 ; Legal interest, 35 ;
Legal rate arbitrary, 35 ; to protect
debtors, 38 ; Market, 36 ; Principal,
35 ; Rate, 35 ; by what governed,
36, 37
Import duties, 57
Individual restraints of trade, 57
Investment securities, 228
Labor
Measure of productivity, 49 ; Meas-
ure of reward, 49 ; Price of, 49
Letters of credit, 258
Loans on collateral, 112
M
Margin, 185
Margin, speculating on, 186
Merchant, origin of, 7
Metals, restricted circulation, 59
Money
A legal tender, 22, 23 ; Collateral
restriction of use of, 20 ; Circula-
tion, theory of, 20 ; Definition, 9 ;
Effect on values, 9 ; Fiat money,
17 ; Government regulation of, 23 ;
of coin, 23, 24 ; of paper, 24-26 ;
How issued and distributed, 23 ;
Inconvertible paper money, 21 ; ob-
jections, 21 ; Increase and decrease
in value, 10, n ; Issuers must re-
ceive value, 25 ; Measure of value,
12 ; Metal money, 10, 15 ; Money
a commodity, 10 ; Not capital of
issuer, 26 ; Paper money, 10-12, 17;
by whom issued, 18, 19 ; how issued
and circulated, 24, 25 ; Proper is-
suers, 22 ; Proportion to credit, 9 ;
Single or double measure, 12 ; State
or national issue, 19 ; in what re-
deemable, 19 ; Supervision and con-
trol by government, 26
Money orders, 239
Monopoly, 56
Mortgage and debenture companies,
176
N
National banks
Articles of association, 71 ; Assess-
ment, 83 ; Banks and national
banks, 68, 70 ; Bonds, comparison
of, yearly, 75 ; exchange of, 75 ;
held for redemption of circulating
notes, 74 ; held in trust, 74 ;
may be sold to pay circulation,
88 ; reassignment of, to bank, 76 ;
Capital, impairment to be made
308
INDEX.
good, 82, 83 ; minimum, 73 ; not
to be withdrawn, 82 ; Capital stock,
73 ; how paid in, 73 > how trans-
ferable, 73 ; not to be received as
collateral, 82 ; Central reserve cities,
79, 80 ; Certificate to be published,
74 ; Character of reserve and where
kept, 79, 80 ; Circulating notes, 76 ;
furnished by comptroller, form,
dies, etc., 76; not to be hypothe-
cated, 82 ; not to be used for adver-
tising, 79 ; Clearing house certifi-
cates, 80 ; Comptroller of currency,
71 ; Comptroller and treasurer given
access to each other's books, 75 ;
discretion of, 89 ; to decide if bank
is entitled to commence business,
74 ; Consolidation, 86 ; Contracts,
suits, 72 ; Corporate life, twenty
years, 71 ; powers, 71 ; Decrease of
bond deposit, 74 ; Deposit of bonds,
74 ; minimum, 74 ; with United
States Treasurer, 74 ; Depository
of government funds, 78 ; Destruc-
tion of plates, dies, etc., 77 ; Direc-
tors, election of, qualifications, etc.,
77 ; Directors, officers, 72 ; Disso-
lution, notice to be sent comptroller
and published, 86 ; voluntary, 86 ;
Dividends, 81, 82 ; penalty for fail-
ure to report, 84 ; shall not exceed
net profits, 82 ; to be reported to
comptroller, 84 ; Examination of
plates, dies, etc., 77 ; ordered by
comptroller on notice of protest of
circulating notes, 87 ; Examiners'
powers and fees, 85 ; Executors not
personally liable, 78 ; Expense of
issue, how paid, 76 ; Gold banks,
79, 80 ; Incidental powers, 72 ; In-
corporators' organization certificate,
71 ; Increase of bond deposit, 75 ;
Interest, 81 ; Lawful money, defini-
tion, 79 ; reserve, 80 ; Liabilities,
82 ; not to be increased, 80 ; Liqui-
dation, 86 ; Maximum loan to one
party, 81 ; May only issue notes
furnished by the Federal Govern-
ment, 77 ; National bank notes not
to be used for advertising purposes,
penalty, 79 ; National banks, func-
tions of, 72 ; must receive each
other's notes at par, 81 ; " Natural
persons" defined, 71 ; State banks
may reorganize as national banks,
79 ; Stock sold on failure to pay,
73 ; increase or decrease, 77 ; Sur-
plus, 81 ; Taxes, 70, 84 ; Transfers
of bonds, 74 ; United States first
lien on assets, 87 ; Usury, penal, 81
National gold banks, 79, 80
Necessities of most universal value, 50
New York Stock Exchange, 196
Charges, 197 ; Devices, 199 ; Gala
days, 198 ; Gratuity fund, 198 ;
Membership, 198 ; Over-certifica-
tion, 198 ; Seats, 198 ; Stock deliv-
eries, 198 ; how and when paid for,
198.
Nickel, 60
Notary, 251
Note brokers, 192
Notes, indorsements of, liability of
maker, how limited, 246
Notice of Protest, 252
O
Over- certification, 112
Papers, 243, 250
Pools, 190
Postage stamps as money, 22
Post office orders, fees charged, 240
Preservative commodities, 50
Price, 48
Competition and combination, 55,
56 ; Corner, 57 ; Demand, effective,
54 ; Distinction between price and
value, 48 ; Distribution, 53 ; Ex-
cessive production, waste, 53 ; Fac-
tors of price, 52 ; High prices, 55 ;
Import duties, 57 ; Individual re-
straints of trade, 57 ; Labor, 49 ;
Low prices, 54 ; Monopoly, when
possible, 56 ; Preservative com-
modities, increase in value, 58, 59 ;
Price of wheat, 53 ; Production,
cost of, 52 ; Railways, canals,
steamships, 53 ; Restraint of trade,
56 ; Restricted circulation of metals,
59 ; Retail price, 50 ; Standard of
value, effect on price, 57 ; Supply
and demand, 54 ; Supply, available,
54 ; Trades unions, 55 ; Transpor-
tation and procurability, 52 ; Trusts,
55
Presentation of notes, drafts, etc., 251
INDEH.
309
Private bankers, 178
Business of, 179; Capital of, 179 ;
Circulating notes, 179 ; Financing
companies, 179; Government grants,
181 ; Privileges of, 179 ; Promoting,
179; Railroads, construction, 181 ;
Reorganization of companies, 179,
1 80 ; Right of way of railroads,
181 ; Securities deposited with trus-
tee, i Si ; West, development of,
1 80.
Protest, 252 ; notice of, 252
R
Railroads, construction, 181
Railways, canals, etc., effect on
price, 53
Receivers' certificates, 227
Reclamations, 1 12
Refining gold, charge for, 23
Registered letter, 238
Restraints of trade, 56
S
Safe deposit companies, 163
Burglars, fire, etc., safeguards
against, 165 ; Box and safe holders,
165 ; Capital, maximum and mini-
mum, 163 ; Corporate life fifty
years, 163 ; Capital stock to be paid
in before commencing business, 164 ;
Consolidation, 166 ; Directors, num-
ber of, election, notice of, to be pub-
lished, powers of, 164 ; Incorporat-
ors, five, 163 ; Location, importance
of, 1 66 ; Objects, 163 ; Pass word,
165 ; President, 164 ; Rent of boxes,
when unpaid for three years, pro-
cedure, 165 ; Safes and boxes, ar-
rangement of, 165 ; Stockholders,
liability of, and right of contribu-
tion, 164
Savings banks, 138
Assets and liabilities to be reported
to superintendent 1st January and
ist July, 148 ; Available fund, 145;
Banks and trust companies, first
lien on their assets after payment
of circulating notes, 149 ; Books,
vouchers, etc., to be examined by
committee, 148 ; Business must be
begun within a year, 141 ; Business,
when to be commenced, 140 ; By-
laws, rules and regulations, and
amendments, copy to be sent super-
intendent, 141; Certificate of author-
ization, on what conditions granted,
where filed, 140 ; Committees, 141 ;
Creditors, how paid, 149 ; Custo-
dians of, 138 ; Depositors, classifica-
tion of, 147 ; Deposits and interest,
how invested, 143-145 ; Deposits,
amount of, limited, 143 ; in trust,
143 ; may be made by savings banks
in banks and trust companies, 145 ;
maximum, of individuals and cor-
porations, 143 ; of minors, 143 ;
Directors, number of, powers, quali-
fications, etc., 141 ; District of
Columbia, 138 ; Dividends and in-
terest, how declared, 148; extra, how
declared, 148 ; unearned, trustees
liable for, 148 ; Improved property
to be insured, 146 ; Incorporators,
number of, 138 ; Insolvent savings
banks, 149 ; Interest, allowance of,
how computed, 147 ; change of rate,
posted in bank, deemed personal
notice, 148 ; not to exceed 5 $, 147 ;
rate regulated by trustees, 147 ;
Liquidation, voluntary, 149 ; Loans,
restrictions in regard to, 146 ; Lo-
cation may be changed, 145 ; Or-
ganization, certificate shall state,
139 ; notice of intention, to be pub-
lished, 139 ; Pass book, in case of
loss, 147 ; to accompany check, 147;
Powers, limited by banking act, 141 ;
Quorum, seven, 141 ; Real estate,
how held, 144 ; Regulations to be
posted in bank and printed in pass
books, 143; Restrictions, 146; Stocks
and bonds, value to be determined
by superintendent, 148 ; Superin-
tendent, investigation as to pro-
posed company, 140 ; may apply
interest to defray expenses, 149 ;
may extend time to begin business,
141 ; may refuse to file certificate
of organization, 139 ; to give notice
to county clerk of refusal, 140 ; to
report to legislature, 149 ; Surplus,
fund to be accumulated, 147 ; how
determined, 148 ; Trustees, com-
pensation of, 142 ; may not borrow
from bank, 142 ; may require bonds
of employees, 142 ; not to be inter-
ested in profits, 142 ; when office
becomes vacant, 142
3io
INDEX.
Seigniorage, 24
Sherman law, 24
Silver, n, 14
Coinage limited, 24, 60
Silver certificates, 63
State banks, 90
Affidavit of officers, 94 ; Annual re-
port to legislature, 97 ; Banks and
officers, 113; Bank, definition of,
93 ; Banking Department, 93 ;
" Bank," unauthorized persons pro-
hibited from using word, penalty
and exception, 109; Bills and notes
must be payable on demand, 107 ;
Bills payable in money, 108 ; Bonds
and mortgages, 95 ; Call loans, 105 ;
Capital, impairment of, 95 ; mini-
mum to be paid in, 94 ; Capital
stock, how to be paid, 103 ; Causes
of failure of State banking systems,
90 ; Certificate of authorization to
commence business, 94 ; Certificate
of individual banker, 100 ; Certifi-
cate of organization to be filed with
superintendent and county clerk,
99 ; to provide, 99, 100 ; Change
from National to State bank, 105,
from State to National bank, 105,
106 ; of certificate, 99, 100 ; Circu-
lating notes, etc., 106, 107 ; Circu-
lation below par not to be paid out,
107 ; Conditions different in 1892
from previous to 1862, 91 ; Con-
solidation of banks, 102 ; notice of,
etc., 102 ; Contracts, circulating
notes, how signed, etc., 104; Cor-
porate life, 99 ; Creditors to receive
notice, 107 ; Creditors or share-
holders may apply for examination
of securities, 96 ; or for receiver,
98 ; Directors, 105 ; oath, 103 ;
qualifications, etc. (hold office for
one year), 103 ; Dissenting stock-
holders, 102 ; Examiner, not to be
appointed receiver, 93 ; reports to
be published, 95 ; Foreign bank
notes not to be issued, 107 ; Foreign
banking corporations must make
same deposits as State banks, 95 ;
to secure permission to do business,
and appoint superintendent their
attorney, 98 ; instructions, 98 ; not
to receive deposits, 108 ; General
powers, 100 ; Grace, none, 108 ;
Incorporators, five, 99 ; Indiana,
Ohio, Louisiana, Massachusetts,
and New York systems, 91, 92;
Information, penalty for refusal to
furnish, 96 ; Interest, rate of, 104 ;
on call loans, 105 ; Lawful money
reserve, amount, where and how
held, not to be impaired, etc., 101 ;
Loans, limit of, 97 ; Location,
change of, 98 ; Losses, how charged,
97 ; New York State banking laws,
92 ; Notes payable on demand only
to be issued, 107 ; in lawful money
only to be circulated, 108 ; Officers
not to purchase commercial paper at
less than face value, 97 ; Plates and
dies, destruction of, 106 ; Powers
of banks, 100 ; President to be a
director, 103 ; Private bankers, 100 ;
to give information, 96 ; Profits,
calculation of, 97 ; Real estate as
security for circulation, 95 ; Real
Estate, how held, 101 ; Receiver,
appointment of, 98 ; Reports of
examiners may be published, 95 ;
Reports, quarterly, summary to be
published, 96 ; penalty, 96 ; Residue,
distribution of, 107; divided among
stockholders, 107 ; Restrictions as to
officers, 97 ; Securities, comparison
of, yearly, 93 ; deposit of, 94, 95 ;
deposited with Banking Department
as guarantee of good faith, 105 ;
kinds of, deposited with Banking
Department, 94, 95 ; may be ex-
changed, 95 ; State Banking De-
partment, 93 ; Superintendent, 93 ;
Stockholders, definition of, 104 ;
dissenting, to consolidation, 102 ;
liability, 104 ; Transferees of stock,
104 ; Uniformity in value of notes,
91 ; Usury, penalty of, 104
Stock brokers, 182
Stockholders, 210
Stocks or shares, 209
Assented, 216; Assessable, 21 1 ;
Common, 212; Cumulative, 212 ;
Dividend, 215 ; Ex-Dividend, 215;
First assessment paid, 216 ; Guar-
anteed, 216 ; Non-assessable, 211 ;
Non-cumulative, 213 ; Preferred,
212 ; Promoters', 215
Sub-Treasury, New York, 64
Balances, 66 ; Cost of handling
money, 65 ; Disbursements, 66 ;
Receipts, 66
Supply and demand (price), 54
Supply, available (price), 54
INDEX.
Trades unions, 55
Transmission of money, 237
Post office orders, fees charged, 237
Transportation, 52
Transportation and procurability, 52
Transportation companies, 53, 181
Treasury notes, 62
Trust companies, 150
Authorization, certificate of, to be
filed with county clerk and super-
intendent, 159; Authorization may
be refused by superintendent, 159;
Auxiliaries to banks, 152 ; Banks,
comparison with trust companies,
151 ; relation to, 150; Capital, en-
tire amount to be paid in, 158 ;
how invested, 159 ; minimum, 158 ;
Circulating notes, not issued by
trust companies, 155 ; Consolidation
and merger of trust companies, 162 ;
Corporate life, fifty years, 153 ;
Depositors, character of, 152 ; De-
posits, character of, 152 ; Directors,
board of, how chosen, 160 ; election
of, 161 ; how classified, 160; lia-
bility of, 161 ; qualifications, 160 ;
Escrow, papers held in, 154 ; Ex-
ecutor, administrator, etc., when,
. to furnish statements, accounts, etc. ,
159; Financial agent, as, 162; In-
corporators, number of, 158 ; Super-
intendent to ascertain as to fitness,
158 ; Interest, on what paid, 160 ;
Letters testamentary, etc., 159;
Loans, character of, 152 ; Manage-
ment, 160 ; Organization certificate,
notice to be published and sent to
other trust companies before filing,
158 ; what it must state and where
to be filed, 158 ; Payment of money
.and performance of obligations,
agent for, 155 ; Powers and limita-
tions, 156, 157; Registrar, 154;
Reorganization, agent of, 154 ;
Stock and bond holders, agent of,
154 ; Stockholders, liability of, 161 ;
Stocks, holding of, limited, 1 60 ;
Trust company, incorporated under
special laws, 161 ; Trust funds, how
invested, 160 ; Trustee, executor,
administrator, etc., advantage of
trust company, 153.
Trust company receipts, 226
U
Uniformity in value of notes, 69
United States money, table of, 64
United States notes (greenbacks), 62
United States Treasury notes, 62
Value, definition and principles of, 4
Divisibility, 7 ; fixed by barter, 5,
1 7 ; gold the universal standard of,
13 ; Intermediate, 7 ; Intrinsic, 5 ;
Labor measure of, 4 ; Limitation
of quantity, 5 ; Measure of, 5, 12 ;
Metals the measure of, 6 ; Relative,
ii ; Standard, 12 ; how fixed, 12 ;
Standard of, effect on price, 57 ;
where fixed, 1 2
Values of Foreign Coins, Table No.
I., 262 ; Remarks as to use of table.
264
W
Warehouse receipts, 243
Weight of Unit of Foreign Currencies
(Table No. II.), 266 ; Remarks as to
use of table, 264
West, development of, 180
YC 23910